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Labour Market Failure - Imperfect Information and Discrimination

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Sky Dweller

on 21 December 2012

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Transcript of Labour Market Failure - Imperfect Information and Discrimination

Imperfect Information Adverse Selection Imperfect Information and Discrimination Discrimination The main types: Case Study Effects Definition of Imperfect information is when the firm or workers know more than the other about a particular job. The worker within the labour market is less skilled than they portray they are to firms in interviews for jobs. "I am an experienced top chef at a world leading restaurant" The other type is when the worker applying for the job doesn't know what the job entails until they work there because the firm portrays the job as less demanding than it is. "Employee may have to carry parts to different departments in factory" This is when firms only employ workers that appear good in interviews rather than in accordance to their skills. This means that firms lose out on employing efficient workers with the skills they need for less productive workers. This is when firms treat or value workers differently due to personal characteristics Racial Discrimination is when firms stereotype workers of an ethnic background as being of less value and less productive than others. Racial Discrimination Gender Discrimination This happens when firms treat workers of a specific gender differently to workers of the other Gender. This can means that workers of one gender are able to gain higher pay and even better job prospects. This can lead to the gender pay gap with men receiving higher wages for the same jobs as women workers 17 out of 30 letting agencies were discovered as discriminating against workers on race. The study showed that letting agencies favored "white male" workers to that of other races due to the stereotype that they are more easily approachable and will provide more business to the firm. From the graph it is possible to see that firms estimate the MRPL of the non-white male workers to be lower than that of the white males and this causes a higher demand for white male workers than non white. Discrimination causes labour market failure and inequality in the distribution of income and wealth Wider economic effects are due to government intervention being required to fix the market failure caused. this means there is higher government spending which may mean diversion of funds from other sectors such as education. It can also cause a fall in living standards within minority groups of workers and discourage them from entering the labour market causing higher unemployment. Government Intervention The government fixes the market failure through two ways: Legislation
regulation The government introduced the equal pay act and sex discrimination act The Equal opportunities commission was set up by the government to ensure the sex discrimination act was implemented by firms. Alberto Carolino
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