Problem Set 7
1. Nicholson Problems 16.1, 16.5, 16.8, 16.10.
1. The Fischel and Lazear article states on p. 151-2, "The most frequent objection to comparable worth has focused on the premise that the comparability of different jobs can be measured or evaluated apart from values assigned in the marketplace. Critics claim that the 'worth' of a job can only be determined by reference to the wage that prevails in the market as a result of the forces of supply and demand. ...The debate about comparable worth, in this view, is simply a modern manifestation of the question that has confounded philosophers for centuries concerning the meaning of a 'just' price or wage."
(a) Explain why defining a 'just' price or wage is difficult (English professors have been known to make such arguments in opposition to paying higher wages to economics professors). [hint: see also the discussion on p. 158].
(b) Describe the main assumptions which are required to deduce that a market wage relects the marginal value of a worker (consider for example the competitiveness of the labor market, the way in which wages are determined, the presence or absence of discrimination). For each assumption, name a scenario where this assumption is satisfied, and another scenario where it is not.
(a) Describe the "choice" theory of male-female wage differentials.
(a) Can you think of an occupation where this theory seems like a plausible explanation for a female majority and low wages? Can you think of two "comparable" occupations, one mostly male and one mostly female, which also seem comparable on issues of flexibility and opportunities for child care?
(b) What is the empirical evidence in favor of the choice theory? Does the choice theory explain all of the wage differential, according to the article?
3. Fischel and Lazear argue that "Any persistent wage differential among occupations must either be nondiscriminatory ... or must reflect a barrier to entry in higher paying occupations" (p. 901).
(a) Justify Fischel and Lazear's claim with economic logic.
(b) Consider institutions such as non-profit hospitals and government agencies. Do you think that wages in such jobs are entirely determined by market forces? What other forces might determine wages in these settings? What evidence could you potentially observe which would support a "disequilibrium" view? [Hint: think about what happens when a firm advertises a job, how easy it is for such institutions to lay off workers, and the processes by which wages are determined in those sectors].
(c) Would you expect hospitals and government agencies exercise market power in their local labor markets? If so, could comparable worth increase efficiency? Illustrate your answer with a graph which illustrates how the firm chooses labor when it has market power, and which shows the effect of a mandated wage change. [Hint: go back to your notes from the minimum wage debate!]
4. According to the theory presented in the article, who wins and who
loses from settings wages according to comparable worth (i.e., raising
nurses wages to match those of electricians)? Illustrate your answer with
a carefully labeled graph showing regions of surplus lost and gained.