Essay Sample: Labor Supply Shocks, Native Wages, And the Adjustment of Local Employment

How does an internal labor market work?

The internal labor market is used to refer to the administrative unit within an organization whereby procedures govern the allocation of labor and pricing and set of rules within the administrative function of the organization(Wynarczyket al. 37). Mostly, the hierarchical structuring of various jobs is at the entry level, and those that are at the bottom are usually connected to other external labor markets. Internal labor market transfer and promotion of workers is based on those who have gained entry. There is also a lot of competition within the internal labor market in the form of pay and job promotions.

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What is the decision rule for internal training and promotion as opposed to the hiring of an already trained outsider?

When hiring, the decision rule favors internal training and promotion as opposed to an already trained outsider. Training individuals from within the company strengthen and boost the morale of others and keep productivity high. Employees from within know there is an opportunity for potential growth within the company. Therefore, the company is less likely to lose other promising and reliable employees. Training internally gives a chance for the company to hire individuals with better knowledge and experience about the organization as opposed to an outsider. Also, these internal hires are important to the organization as they retain their organization knowledge and speed. It takes less time to promote and train individuals within the organization than hiring externally who will take time to adapt to the company style. Moreover, hiring internally promotes engagement as people are familiar with each other and tend to refer to one another more frequently.

How would the decision rule change if the outsider needs to be trained as well?

The decision rule might change if the outsider also needs to be trained. The company should evaluate the cost of training internally and compare it with training outsiders. The moral of the insiders, their trust and competence should also be considered. If the company needs to adopt a different outlook training an outsider is much considered as they don't have the previous image of the company (Wynarczyk et al. 47). The decision rule, in this case, will have to change if the outsider really has to be trained. There will be a need for more qualified individuals with knowledge and expertise within the organization to train the new member.

Does the nature of the training play a role at all?

The nature of the training plays an important role during hiring. It is vital for both the employee and the employer. Well trained employees are efficient as well as productive. Also, new employees should be adequately trained to be familiar with the company's goals and vision. Therefore, properly and well-trained employees waste less money, time and additional resources that could have been used elsewhere.

Economics of Discrimination

Discrimination in the labor market occurs when employers make decisions on wages and employment based on prejudices rates, such as race, gender, religion. It can lead to variations in wages for the same job and different employment. Some workers, employers or customers do not want to work with or come into contact with members of other racial groups or with women (Lazear 85). The model of employer discrimination assumes that there is a taste or preference against people from disadvantaged groups and that this taste can be treated in the same way that economists would analyze individual preferences between goods and services.

If an employer does not want to employ members of a particular group, say type B, even though they are as productive as any others, and the firm has to pay all workers the same wage it will simply not employ members of the disadvantaged group B. However, if it is possible to pay these workers less than those from another group A, the firm then faces a trade-off to employ members of the disadvantaged group at lower wages and thus increase its profitability, or it can discriminate and employ only workers from the high wage group even though this will mean lower profits and higher cost on the firm. Where the wage of A and B are equal, the profit trade-off faced by the firm is equal irrespective of whether the firm employs type A or B that is t/A=t/B. The demand for labor in this type of market is self-regulating and competitive.

Compensating Wage Differential

The compensating wage differential depends on how much income is necessary to compensate for unpleasant working environment. It implies different wages paid to different workers in different markets that adjust for differences in the productivity of the workers. In some cases, the market is self-regulating in terms of risk, while in other cases, governments establish many regulations and policies that guide businesses. Low wages largely depends on what is being developed within an organization; a cheaper wage rate may not give a balance to all customs costs on a company. Besides low wage employees may be less productive in their day to day operations. Based on this, another objection is used in most incidences in support of minimum-wage increment: It is unjust that most people financially support businesses that pay minimum wage by the provision of management aid to people who cannot survive on the projected funds.

The government can implement a policy that changes social behavior in the business environment. Imposing on a particular sector more taxes or duties that are necessary will make the investors lose interest in that sector. Similarly, increased spending requires increases in taxes or borrowing. Any tax increase will discourage investment, especially among entrepreneurs, who take the risks of starting and managing businesses. Increased spending also eats into the limited pool of savings, leaving less money for private investment. Reduction in private investments shrinks production of goods and services. That, in turn, may lead to the elimination of jobs.

Organization safety and health administration ensure that every working man and woman in the nation is employed under safe and healthful working conditions (OSHA Act) of 1970 (Libicki 58). The general duty standard states: "Each employer shall furnish to each of his employee's employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees." The government aim is to protect the end user from certain harmful business activities.

Labor Unions

Collective bargaining is the negotiation process that takes place between an employer and a group of employees when certain issues arise. Workers band together to collectively negotiate a wage increase as together they have more bargaining power as individually(Peetz 103). The employees rely on a union member to represent them during the bargaining process, and the negotiations often relate to regulating such issues as working conditions, employee safety, training, wages, and layoffs to form what is referred to as collective bargaining agreement. A zero-sum game that is treated situation whereby each participant's gain or loss is equated by the losses or gains of the utility of the other participants. If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero.

My interest

'I win.'

You're Interest

'you lose.'

In cases where the union and the firm do not come into an agreement, strikes are undertaken by labor unions as the last resort. In such a scenario, collective bargaining is referred to as 'non-zero sum' This is a win-win situation, where both the union and the firm have areas of overlapping interest thus a win-win situation.

Areas of overlapping interest 'win-win.'

Labor Supply

As the wage rate decreases, the slope becomes shallow; thus a shift from 1 to 2. Employees will prefer to work during leisure hours if the income is higher, and less will be willing to work leisure hours with a lower income.

A crucial part of any worker's compensation system is a set of mechanisms and standards for providing medical care to injured workers (Dustmann, Schonberg,& Stuhler 437) Where workers injured on the job receive a fixed compensation $x per year, this is an unjust compensation since the degree of injury varies for each individual. The compensation package should consider the extent of the injury and how it's going to affect the worker. Whereas some form of permanent injury may render the individual completely unable to work, other forms of injury would allow the individual to continue working. The incentive should be higher for those unable to take part in the labor market.

Works Cited

Dustmann, Christian, UtaSchonberg, and Jan Stuhler. "Labor supply shocks, native wages, and the adjustment of local employment." The Quarterly Journal of Economics 132.1 (2017): 435-483.

Lazear, Edward P. "Gary Becker's Impact on Economics and Policy." American Economic Review 105.5 (2015): 80-84.

Libicki, Martin C., David Senty, and Julia Pollak. Hackers wanted: An examination of the cybersecurity labor market. Rand Corporation, 2014.

Peetz, David. "Collective bargaining." WAGES CRISIS: 103.

Wynarczyk, Pooran, et al. Managerial labour markets in small and medium-sized enterprises. Routledge, 2016.