Question

1. Illustrate and explain the Human Capital approach to education decisions. How does the Signalling approach fundamentally differ from the Human Capital approach?
2. Explain and illustrate two methods that unions can use to raise the wage rate for their members.

3. Classical economic theory treats unions as monopolies that create inefficiencies in the economy. Explain and illustrate how these inefficiencies are created in both the labour and product markets.

4. Explain and illustrate the cross sector effects that may occur due to unions.
   

5. Explain and illustrate how unions may increase efficiencies in monopsonistic markets.

6. Explain and illustrate the Efficient Contracts model. Why do we find employers reluctant to negotiate over wages and employment levels.

Answer 1

1. Human capital approach to education decision = Education increases the productivity, effeciency of workers, individual demand for education, education expenditures are constitute form of investment, wages at individual level.

Signalling approach fundamentally differ from the human Capital approach = work experience of workers, direct measures of job performance, education is only a signal.

2. Two methods that union can raise wage rate = a) impose worker rules that increase producation at a given quantity of output. b) increasing demand by promoting product produced by worker which increasing equilibrium wage.

3. Inefficiencies in labour market = workers either unemployed or employed, number of unemployed workers, number of vacancies

Inefficiencies in good market = consumer supply, current consumption bundle, consumer- firm relationships.

4. Cross sector is collaboration of public, private and social sectors , this sector have occupational heterogeneity, diffrent wage rate , no competition over bargaining between unions that results industrial conflict.

5. Trade unions can increases the wage rate above the equilibrium wage rate, higher the wage directly proporational to productivity, trade unions is counter balancing the monoposnstic power of trade union, increase the totsl utility.

6. efficient contract model diffen monopoly of union is outcome barganing power between wage and labour that is one has better off without making other worse off.

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