The Economics of Labor Markets - Assignment Example

I feel that the compensation in terms of the remuneration for the work and services I offer is fair. Because it is above the minimum wage set by the labor laws, it gives me the feeling of satisfaction that it is fair.  The labor market comprises different types of workers differing from one another in several ways with the job differing in characteristics both in terms of wage and in terms of other nonmonetary attributes (Mankiw, 2011).

To protect employees from exploitation by their employers, the government sets a minimum wage limit. This has been of help in raising the wages of the less skilled compared to what they would have earned in an unregulated labor market. However, despite this, the wages of some workers have been set above the equilibrium level arising to disequilibrium in the labor market (Mankiw, 2011). We can also attribute this to compensating differentials which refers to the difference in wages which arises from other nonmonetary characteristics of various types of jobs which is quite prevalent in our economy. An example would be employees with similar qualifications but since one works during a night shift earns more. Employees deployed to work in hardship conditions may be compensated more compared to employees with similar qualifications but working in friendly environments.

Human capital is the accumulation of investment in people with the most explication of it being education. The perspective of demand and supply postulates that there exists a correlation between high wages and the level of education. Additionally, firms demanding for labor tend to be more willing to pay more for highly educated employees since they tend to have higher marginal productivity due to their proficiency (Mankiw, 2011). On the other hand, the suppliers of labor tend to also be more willing to pay the costs of becoming educated only if there is a reward for that. Thus the difference in wages between the highly educated and less educated can be considered as the compensating differential for the cost of becoming educated (Mankiw, 2011). This may lead to imbalances in wages as most professionals demand for high remuneration. An example would be the difference in wages between a physician and a general practitioner.

In a free enterprise system like our economy, most employees tend to give more emphasis on maximizing their wages. This provides the workers with the opportunity to move from the low-paying industries to the high-paying industries forcing a rise in wages for them to retain labor. This at times escalates resulting in disequilibrium in the wage rates which has various diverse effects on the economy.