Question
It is argued that the wage determination in imperfect markets leads to exploitation. It is, therefore, necessary and beneficial if the government intervenes in the determination of wage rates. Discuss whether there is any truth in this argument. (13) (Paper 4).
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Answer:
It is assumed that in perfect competition market
the wage determination is set by the market forces of demand labour and supply
of labour. But monopolize labour market will result in a lower level of
employment and lower wages would exist in a competitive labour market. Thus it
is believed that the imperfect market leads to exploitation. However, this
comparative lower wages rate and employment can be corrected by incorporating
government intervention.
However,
this comparative lower wage rate and employment can be corrected without
government intervention simply by incorporating trade unions. The union will
resist the wage decrease of their members by either restricting the supply of
labour or by direct negotiation. They can restrict the supply of labour through
the use of a closed shop by lengthening the time it takes to complete an
apprenticeship. Over a period of time, this could reduce the supply of labour,
and raising the demand in the labour. it
creates disequilibrium in the market.
Alternatively,
trade unions can influence the market through collective bargaining. It
involves the direct negotiation between a Trade union, bargaining collectively
on behalf of its members and the employers. Suppose that all workers in an industry organize bilateral
monopoly union, and they will settle the wages through collective bargaining.
When the
government intervenes in a labour market it fixes the minimum wage above the
market wage rate. The minimum wage is a pay floor. Employers are not allowed to
pay their employees a rate below the minimum wage. The outcome of the minimum
wage is shown in the figure
The government then set a minimum of W1, which
will kick the supply curve of the labour and produce disequilibrium in the
labour market.
Following a
minimum wage fixed by the government not only do the workers get higher wages
but the monopolist employers actually employ more workers. It is only when the
minimum wage is fixed above W that employment starts to fall.
Thus
government intervention is not the only solution to deal with the exploitation
of workers in an imperfectly competitive labour market. It can also be
addressed by increasing the power of trade union to fix the wage rate at a
higher level.
M. Anwar Hossain
Senior Teacher (O & A-Level)
Call: 01676514507
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