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Chapter Review Chapter 16: Imperfections in the Labor Market

  1. The proportion of U.S. workers in unions has declined since the 1950s. Possible reasons include laws that have improved working conditions in general; the decline of manufacturing industries, where unions have traditionally been stronger than in service industries; increased competition in the product market, providing firms with less latitude to pay more than market wages; and a legal atmosphere that has shifted away from encouraging unions.
  2. Union gains in wages are typically made at the cost of lower employment, at least in the long run, and lower wages in the nonunion sector. Unions also have played an important role in enhancing job security, though sometimes at the expense of innovation. They have accomplished some of their gains for workers through the political process; for instance, unions have pushed legislation promoting occupational safety and health as well as the minimum wage.
  3. Union power is limited by the ability of companies to bring in new, nonunion workers and to threaten union workers with unemployment.
  4. Explanations of why two workers doing the same job may receive different wages include compensating differentials (differences in the nature of jobs), pro¬ ductivity differentials (differences in productivity between workers), imperfect information (workers do not know all the job opportunities that are available), and discrimination.
  5. Employers try to motivate workers and induce high levels of effort through a combination of direct super¬ vision, incentives for doing well, and penalties for doing badly. They pay wages higher than workers could get elsewhere (efficiency wages), give promotions and bonuses, and base pay on relative performance (contests).
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