Reading notes--Principles of Economics (chapter19)

Summary

Chapter 19 is Earnings and Discrimination. This chapter introduces different kinds of discrimination. (e.g Why doctors earn more wages than workers)

Labour market discrimination– education

• A well-educated worker tends to have a greater wage because of human capital and signaling effect.

• Human capital effect: The well-educated labours have a greater productivity so they have greater wage rates.

• Signaling effect: The access of university does not increase the productivity of labours but it is a signal that labours have the greater ability to master skills so they have greater wage rates/

Labour market discrimination– job

• e.g A superstar always earns a greater wage than a carpenter or a plumber.
• reason 1: Every customer in the market wants to enjoy the good supplied by the best producer.
• reason 2: The good is produced with a technology that makes it possible for the best producer to supply every customer at low cost.

Discrimination by employers

• Wage differential will be eliminated by it in markets with free entry and exit.

• Reason: If employers discriminate one sort of employees, the demand for it will decrease so the wage rate of it decreases in the labour market. Then some employers will recruit them since the cost of these labours decreases.

Definitions

1.Compensating differential– a difference in wages that arises to offset the nonmonetary characteristics of different jobs

2.Strike– the organized withdrawal of labor from a firm by a union

3.Discrimination– the offering of different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics

4.Human capital– the knowledge and skills that workers acquire through education and on-the-job training

5.Efficiency wage– above equilibrium wages paid by firms to increase worker productivity

6.Statistical discrimination– discrimination that arises because an irrelevant but observable personal characteristic is correlated with a relevant but unobservable attribute

7.Union– a worker association that bargains with employers over wages and working conditions

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1. Among full-time U.S. workers, white women earn about_____ percent less than white men, and black men earn about_____ percent less than white men. (Correct answer: C)

a. 5;20

b. 5;40

c. 20;20

d. 20;40

My wrong answer: A

2. The forces of competition in markets with free entry and exit tend to eliminate wage differentials that arise from discrimination by_____ (Correct answer: A)

a. employers

b. customers

c. government

d. all of the above

My wrong answer: D