Question

1. Consider the report distributed by the White House Council of Economic Advisers in October 2016 entitled “Labor Market Monopsony: Trends, Consequences, and Policy Responses”.  This paper can be found on the course BbLearn page.

1. (4 points) Focus on the section entitled “Sources of Monopsony Power in the Labor Market” (pages 3-7). Summarize the factors the report argues have restricted worker wages. Based on the information provided, which of the reasons discussed do you think has had the strongest impact on restricting wage growth in the U.S. labor market?

2. (4 points) Consider the subsection on labor market dynamism (pages 10-12). Discuss the evidence presented in this set of figures regarding trends in mobility among workers. What has been happening to mobility? Do you consider these trends in mobility to be a good sign or a bad sign overall for the state of the economy? Discuss your reasoning, and note that your opinion of the trends can vary by the type of mobility discussed.

3. (4 points) Based on the evidence presented in this document, how much do you think government policy should be used to counteract the impact of monopsony power on wages? Explain your reasoning.  Assuming we were going to use policy, which of the many policy responses mentioned do you think would be most important to adopt? Which would be the least important to adopt? Explain your reasoning.

Answer 1

a. Ans: The situation of ‘Monopsony’ arisen thanks to following reasons and factors. The implications of monopsonistic wage-setting extend on the far side the distribution of wages to profits. First, it will cause inefficient reductions engaged and output, wherever some employees World Health Organization would are willing to figure at the competitive market wage square measure ne'er employed, and therefore the output they might have made is made less with efficiency by alternative corporations if in the least. On the opposite hand, however, the conditions of “perfect competition” that need corporations to require the wage as given also are, arguably, quite rare. a wonderfully competitive market needs that employees stand prepared and ready to amendment employers in response to even slight variations in wages or operating conditions Main necessary sources of marketplace Power within the market square measure as follows. · Market Concentration The presence of a restricted range of corporations within the marketplace for a selected kind of labor could offer every of those corporations some power in setting wages. for instance, manufactory line employees have fewer opportunities to “vote with their feet” in an exceedingly city with one manufactory relative to at least one with several. Holding alternative factors equal, higher concentration in an exceedingly market could cause lower wages even as higher concentration in an exceedingly product market typically results in higher costs. The larger size of employers relative to individual employees tends to relinquish employers a natural advantage in talks leverage over employees within the market. · leader Collusion Limited competition in an exceedingly market conjointly could facilitate implicit or express collusion among employers that enables atiny low range of them to act mutually. Collusion will take the shape of agreements to not rent every other’s employees or the coordination of wage offers and raises so as to avoid competitive bidding. Like worth fixing in product markets, such agreements among employers square measure embezzled within the us and subject to just laws. · Search prices and market Frictions As illustrated by the prevalence of non-compete clauses, market competition could also be restricted even once the amount of employers is massive. Competition within the market needs that employees be ready to switch employers simply in response to changes in wages or operating conditions—and non-compete agreements expressly prohibit workers’ ability to try and do therefore. a lot of generally, any issue that limits employee quality or makes employees reluctant to vary employers—even if not the results of any intentional action on the a part of the firm—can offer corporations some wage-setting power. · “Job Lock” and Employer-Sponsored insurance Employer-provided insurance could be a specific supply of market friction that has long been studied by economists and policy manufacturers (e.g., Madrian 1994; Farooq and Kugler 2016). Most employees within the us younger than sixty five years older receive their insurance through their leader or the leader of a loved one. Prior to the cheap Care Act (ACA), folks seeking coverage outside the geographical point typically had terribly restricted choices. Health insurers giving coverage on the individual insurance market were usually allowed to charge a lot of, limit advantages, or deny coverage entirely for folks with pre-existing health conditions, creating seeking coverage freelance of associate degree leader unattractive for several employees. additionally, the tax code provided substantial subsidies to folks with coverage through associate degree leader since compensation provided within the style of insurance wasn't subject to financial gain and payroll taxation, in contrast to compensation provided within the style of wages, whereas similar help was typically not out there for people that wanted to get coverage on their own. These options of the insurance market could have created these employees reluctant to maneuver to new jobs that don't provide insurance, limiting their outside work opportunities. This development of employees’ temperament to modify employers thanks to their employer’s provision of insurance is thought as “job lock” and may cause workers being stuck in jobs wherever they earn lower wages than they might secure elsewhere, square measure otherwise not glad, or their skills don't seem to be best used. · restrictive Barriers to employee quality Excessive rules may impede workers’ ability to maneuver and therefore effectively limit their employment choices and talks power. One category of rules that may gift barriers to job quality is activity licensing laws (CEA, Department of Labor, and Department of the Treasury 2015). whereas licensing rules will play a vital role in protective shopper health and safety, they conjointly raise the value of coming into a authorized occupation. Today, roughly one in four U.S. employees needs a government license to try and do their job. for a few of those jobs, the prices of getting a license {can be|are typically|will be|is|may be} vital whereas the health and safety advantages could also be often negligible. In these cases, licensing will produce extra barriers to employment, limiting opportunities and depressing wages for people who square measure unable to get a license. Regardless of the supply, barriers to employee quality effectively scale back competition among corporations within the marketplace for labor. And with less competition, employers will exploit paying lower wages— though this implies forswearing some productive employment relationships. b. ANS :- Trends in quality : Geographic quality has conjointly seen a decades-long declined. Industry, occupation, and leader transitions have conjointly fallen markedly over an identical amount, with declines in those measures fast since the Nineteen Nineties This suggests that the decline in dynamism instead reflects a rise either within the prices of moving or within the advantages of staying place. There square measure many reasons to suspect that the downward trend parturient market dynamism is thanks to rising prices of shift jobs. One is that this trend has occurred aboard upward trends in restrictive barriers that impede employee quality. The growth in activity licensing has probably been limiting employment choices and will be reducing talks power for fewer ball-hawking employees. however any, owing to the variation in licensing rules across States, their inflated prevalence conjointly reduces geographic quality for a growing range of employees in authorized occupations. Advantages of quality of labour: The quality of labour helps in increasing potency and productivity of employees once employees move to occupations that they're suited the simplest. It conjointly will increase their incomes after they shift from low paid to high paid jobs. It solves the state downside once employees move to places wherever they're wished. How will labor have an effect on the economy? Labor represents the human think about manufacturing the products associate degreed services of an economy. finding enough folks with the correct skills to satisfy increasing demand. ... fast economic process caused by a rise within the demand for product and services will produce a myriad of latest job opportunities for employees. Having a mobile proletariat helps keep state low. it's necessary to associate degree economy that folks be willing and ready to go wherever the roles square measure situated. In countries wherever quality is harder, like European nation, the pct tends to be higher and therefore the output of products lower. c. Ans :- The U. S. government influences the market through such actions as paying state insurance advantages, setting the salary, raising or lowering business and financial gain taxes, and establishing rules underneath that labor unions operate. the govt. can also undertake special programs to make jobs quickly once state is outstandingly high. The federal has set the salary that may be paid by employers within the us. Some folks get pleasure from a rise within the salary, whereas others—particularly teenagers {and those|and folks} in lower ball-hawking jobs— will be keep out of the duty market as employers rent fewer people to carry down prices. Lowering or raising financial gain taxes will have an effect on the market in additional delicate ways that. Lowering revenue enhancement rates might encourage folks to figure a lot of, as a result of they might be ready to realize a lot of of their financial gain. Likewise, terribly high revenue enhancement rates would possibly cause folks to figure less, as a result of their labor would be therefore extremely taxed. however even supposing folks might want to figure less if after-tax wages square measure lower, they'll work a lot of in order that they will earn enough cash to hide their expenses. Labor is additionally influenced by government investment in infrastructure, like colleges, roads and parks, as a result of these amenities will be as authoritative as tax rates in determinant wherever businesses and other people find. These amenities even have an impact on the wages paid to the proletariat as a result of folks could also be willing to figure for fewer if they will board an area that gives what they price. Role of Govt in Policy In general, the Fed’s financial policy directly affects the value and accessibility of cash and credit within the economy however solely indirectly influences the demand for or accessibility of labor. for instance, suppose financial policy is simply too tight: the money provide is growing too slowly to stay up with commercial activity, and it's obtaining more durable for businesses and customers to get credit. This policy might dampen economic process, probably forcing some businesses—especially people who bank heavily on credit to finance their operations—to lay off employees. The Fed’s crucial role, then, is to implement policies that guarantee there's enough cash and credit within the economy for continued growth however not such a lot that inflation rises. During periods of high state, the Fed should be notably diligent in ensuring the money provide is growing quick enough. The Fed might even attempt to lower the pct by increasing the expansion of the money provide. This strategy could quickly boost economic activity, however it's not essentially a longrun cure for prime state. more cash within the economy doesn't invariably translate into bigger prosperity. Wages and costs would regulate upward to the amendment in cash growth, inflation would negate the result of the information, and corporations would once more stop hiring. If tight financial policy isn't the reason behind the state, then looser financial policy is perhaps not the cure. On the opposite hand, what's the Fed’s role within the economy once the pct is incredibly low? associate degree pct that's below financial condition is one signal to the Fed that the economy is setting out to overheat. heating indicates that inflationary pressures square measure on the increase. If employees square measure in brief provide, businesses that wish to rent new workers can ought to provide higher wages to draw in those already used elsewhere, thereby increasing production prices. If the upper wages don't seem to be supported bigger productivity, several businesses can ought to pass them on within the style of higher shopper costs, therefore wiping out the positive result of the upper wages. The Fed’s role during this case would be to slow the expansion rate of cash and credit in order that the economy grows at a a lot of property pace. By conducting financial policy in such how on keep inflation at low, somewhat certain levels, the Fed will facilitate produce associate degree setting within which businesses and customers don't ought to worry regarding high inflation. serving to scale back uncertainty within the marketplace is one in every of the best services the Fed will perform for businesses and employees. in an exceedingly stable economic setting, business choices won't be deferred, investment can rise and a lot of folks are employed. This stability helps keep the economy growing and manufacturing at high levels. within the end, the Fed incorporates a nice indirect impact on the nation’s market. financial policy cannot directly have an effect on the amount of jobs or force the economy to work at financial condition, however it's a large impact on the economic setting, commercial activity and, eventually, the market. In fulfilling its mission to foster steady growth within the nation’s pecuniary resource whereas anticipating inflationary and financial condition pressures, the Fed should take into account each the short- and long-run effects of its actions on the health of the U.S. economy. By serving to produce a stable and healthy setting, the Fed provides the chance for a lot of and higher jobs within the future.

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