Supply, Demand and the ‘Real World’
Chapter: Lecture VI: Labor market dynamics when motivation is a consideration
LECTURE VI Labor market dynamics when motivation is a consideration The previous lecture argued that labor features several essential and distinguishing characteristics. These collectively imply that the labor market does not function in a manner that allows for simple analogies to other kinds of markets. By taking such characteristics seriously it was demonstrated that the dynamics of low-wage labor markets are diﬀerent from those for simple commodities. Moreover, the theoretical modiﬁcations that follow are suﬃciently important to change our understanding of what constitutes plausible or defensible labor market policies. One of the new assumptions introduced above was the proposition that most people, lacking the advantages of inheritance or accumulated wealth, must work to maintain themselves and their dependents. As such, most people must enter the labor market to access the income required to obtain those items that are necessary to function in society. As was discussed, in those cases where, for any of a host of reasons, a person or family ﬁnds themselves on the margins of the workforce, without savings or substantial employment opportunities, the market can operate in perverse and detrimental ways. Yet, from the perspective of business accounting, it is equally undeniable that the wages of labor represent a cost. Such a perspective is in clear contrast to that of employees for whom wages represent a clear beneﬁt – their income. It follows that changes in wages have diﬀerent implications for those on either side of the negotiation. It is well-known, and no...
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