Fall 2002               Economics 0401

              Vocabulary List: Definitions-Part 2

 

 

42. INDIFFERENCE CURVE: A curve that shows the various combinations of two goods (real income and leisure) that will yield some given level of utility or satisfaction to the individual.

 

43. MARGINAL RATE OF SUBSTITUTION OF LEISURE FOR INCOME: The amount of income one must give up to compensate for the gain of one more unit of leisure.

 

44. INCOME EFFECT: The change in desired hours of work resulting from a change in income, holding the wage rate constant.

 

45. SUBSTITUTION EFFECT (As it relates to Labor Supply): The change in desired hours of work resulting from a change in the wage rate, keeping income constant.

 

46. RESERVATION WAGE: The highest wage at which an individual chooses not to work; the lowest wage at which an individual chooses to enter the labor market.

 

47. BENEFIT-RATE REDUCTION: The rate at which the household’s basic income maintenance benefit is reduced as earned income increases.

 

48. HUMAN CAPITAL: The accumulation of prior investment in education, OJT, health and other factors that increase productivity.

 

49. SCREENING HYPOTHESIS: The view that education only identifies individuals who are trainable or of high ability rather than increasing productivity per se.

 

50. PRIVATE PERSPECTIVE (for Investment in Human Capital): Investors consider only those costs and benefits accruing to themselves when deciding whether to invest in human capital or not.

 

51. SOCIAL PERSPECTIVE (for Investment in Human Capital): Because education produces substantial external or social benefits which accrue to everyone in society, education would be under-produced if these benefits were ignored in the provision of education.

52. CAPITAL MARKET IMPERFECTIONS: The bias against lending money for investments in human capital that occurs largely because human beings cannot be used as collateral for loans.

 

53. SELF-SELECTION (With Respect to Immigration): The notion that those who choose to move tend to have greater motivation for economic gain or greater willingness to sacrifice current for future consumption than those of similar skills who choose not to migrate.

 

54. EFFICIENCY GAINS FROM MIGRATION: The net increase in total output that accrues to society when labor relocates form regions or nations in which it VMP is relatively low to regions or nations in which it is higher.

 

55. EXCLUSIVE UNIONISM: A union structure wherein the members seek to restrict labor supply by excluding potential workers from participating in the trade or profession.

 

56. YELLOW-DOG CONTRACT: A labor contract clause that as a condition of continued employment, prohibits workers from joining a union. These clauses were declared unenforceable by the Norris-LaGuardia Act of 1932.

 

57. MEASURED UNION WAGE ADVANTAGE: This is measured as        (WU - WN)/WN x 100 where WU is the observed union wage and WN is the observed non-union wage.

 

58. PURE UNION WAGE ADVANTAGE: This is measured as            (WU - WN)/WN x 100 where WU is the observed union wage and WN is the non-union wage that would be observed in the absence of the union.

 

59. SPILLOVER EFFECT: The decline in non-union wages which occurs when displaced workers from the union market supply their labor services in non-union labor markets.

 

60. THREAT EFFECT: The increase in non-union wage rates that a non-union employer offers as a response to the threat of unionization.

 

 

61. PRODUCT MARKET EFFECT: The increase in non-union wages that is caused by consumer demand shifting away from higher-priced union-produced goods and toward relatively lower-priced goods produced by non-union workers.

 

62. SUPERIOR WORKER EFFECT: The increase in average union wages that arises when union employers carefully screen prospective employees and hire only the most productive workers. This practice is made possible by the queueing of employees for the higher paying union jobs.

 

63. EXIT MECHANISM: The process of leaving one’s job as a response to dissatisfaction with present working conditions.

 

64. VOICE MECHANISM: The process of using communication channels between the employer and employees to express dissatisfaction with present working conditions. Typically, these channels are institutionalized through collective bargaining and union grievance procedures.

 

65. SHOCK EFFECT: The (alleged) upward shift in the MP schedule that results from managerial responses to an increase in the wage rate.