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In: Economics

How are wages set in the labor market? Are workers and companies Wage (price) setters or...

How are wages set in the labor market? Are workers and companies Wage (price) setters or wage (price) takers or both? Explain how a company or a worker can be a wage setter, while other companies and workers are wage takers. Hint: A wage setter is where the company/worker decide how much to pay/how much the wages should be and wage taker is where the company pays what the market wages are, no more or less.

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In a competitive labor market, wages are determined by the supply and the demand for labor. In that kind of a market, usually both the firms who hire the labor and the workers who supply it are price takers. Neither will very impact the value of labor (the wages).Insuch a case, wages are determined solely by supply and demand. An {influx|inflow|flow} of immigrants, {for example|for instance|as an example}, would increase {the supply|the availability|the provision} of labor and drive down {the price|the worth|the value} of labor. An increase in the overall demand for goods and services would have an effect of driving up the price of labor because it would increase the demand for labor.
A company can be a wage setter by determining the kind of wage structure they formulate for their employees this happens when the labor supply exceeds the available market demand creating a surplus in the labor supply. Due to this surplus, the employee’s loose bargaining power therefore has to accept the wage level that is provided by the industry. Companies in such industry have the power to dictate the kind of wage structure and the actual wage amount they provide to employees


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