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IRE1126H – 2020

Economics of Labour & Human Resources

Final Exam

PART A (Answer Question 1).

1. “In what is being hailed as a ‘historic, landmark’ decision, the Ontario Human Rights Tribunal has ordered the Ontario government to boost the wages of the provinces 963 registered midwives due to long standing gender discrimination…. Last year, midwives [a predominantly female profession] supported about 18 per cent of all births in the province…. The ruling orders a 20 per cent pay hike retroactive to 2011. It means top salaries could jump to as much as $130,000 from about $107,000 today. The decision could mean a payout of as much as $186,000 for a midwife with 10 years of experience….  Between 1993 (when midwifery became a formal part of Ontario’s public health system) and 2005 the Ontario Ministry of Health set midwives pay at 65 per cent of the pay of community health care physicians [historically, a predominantly male occupation]. But the Ministry stopped using this benchmark in 2005…. In 2010 a non-binding joint review conducted by the mid-wives and the Health Ministry recommended a 20 per cent increase to midwives pay to restore the benchmark. The province disagreed, causing the Association of Ontario Midwives to launch a pay equity case in 2013… In 2018 the Ontario Human Rights Tribunal issued an interim decision which upheld the original benchmark, ruling that the government was underpaying midwives. But instead of issuing a compensation order, the tribunal recommended that midwives and the Health Ministry negotiate appropriate redress. The Ministry, however, refused to negotiate, saying it disagreed with the Tribunal’s decision and sought leave to appeal to the Divisional Court. As a result, the midwives went back to the tribunal and asked it to issue a remedy.” (Toronto Star, Feb 24, 2020, p. A1).

(i) Define gender discrimination in a labour market context, including the distinction between pure wage discrimination, occupational segregation, and pre-labour market discrimination. Explain which category or categories applies to the case of midwives.

(ii) Explain and critically assess the Becker “taste” model of gender discrimination, the crowding model and the statistical discrimination model. Discuss why you feel statistical discrimination is, or is not, “fair”?

(iii) Briefly explain the following three policies: Equal Pay for Equal Work, Pay Equity and Employment Equity. Indicate the goals of each of these policies, indicate when they have been implemented in Ontario and/or the Federal jurisdictions, and comment on the effectiveness of these policies in achieving their policy goals.


PART B (Answer only two of the three questions in this Part).

2. “Airline executives have told investors for years that they have fortified their businesses against economic downturns. The industry has consolidated… They have also segmented their most price-sensitive customers in basic economy to keep heavy discounts from pulling down fares across the board… Delta Chief Financial Officer Paul Jacobson said last year that …. ‘we spent years doing that in an effort to, as I frequently say, study for this final exam that is a recession.” (Toronto Star, March 3, 2020, p. S11).

(i) Explain (using diagrams) how an airline with some degree of monopoly power could increase profits by dividing the product market into business and recreational travel segments and charging business travelers higher prices that are more than difference in the costs of providing the two services. Carefully outline the assumptions you are making in the analysis of this model.  

(ii) Explain (using diagrams) how an employer with some degree of monopsony power could increase profits by dividing the labour market into full-time and part-time segments and paying part-timers less than full-timers for doing substantially the same job, even though they have equal productivity. Carefully outline the assumptions you are making in this model.

3. “On average, public sector jobs pay more than private sector positions, but that’s not a fair comparison…because public sector jobs typically call for more education and a higher set of skills.” (Toronto Star, Feb 22, 2020, p.A9).

(i) Outline the methodological issues in measuring the earnings gap between public sector and private sector employees (particularly separating the gap into a part due to differences in productive attributes and a part that is a pure public sector premium). Include a discussion of the difference between the intercept shift dummy method and the Oaxaca decomposition method, using diagrams where appropriate to clarify your explanation. In your diagram, analyze the case in which “public sector jobs typically call for more education” than private sector jobs. Review the Canadian empirical evidence on this issue.

(ii)  Explain the determinants of the elasticity of the long-run demand for labour (as specified by Marshall and Hicks) and discuss whether the demand for labour is predicted to be more inelastic in the public sector or the private sector. What does the empirical evidence suggest concerning the magnitude of the elasticity of demand for labour in the public and private sectors? Outline the implications of the elasticity of demand for labour for union power in the public and private sectors.  Does the evidence indicate a higher union-nonunion wage differential in the public or private sector? Considering the difference in union density in the public and private sectors, explain whether unions raise the average wage (combined union and nonunion) more in the public or private sectors.

4. “Ottawa used to set a national minimum wage for employees in the federal jurisdiction but, since 1996, employees in the federal jurisdiction have been entitled to whatever the minimum wage is in their respective provinces. It’s time for Canada to reinstate a minimum wage for employees under federal jurisdiction. And this time it should lead, not follow, provincial governments. At a minimum, Ottawa should adopt a $15-an-hour minimum wage indexed to inflation.” (Toronto Star, Aug 12, 2019).

  (i) Explain the difference between an employer that is a wage-taker in the labour market and an employer with some degree of monopsony power. Discuss the predicted employment effects of the introduction of a minimum wage in a competitive labour market model and a monopsony model, using both diagrams and “common-sense” (i.e. intuitive) explanations of your results.

(ii) Briefly review the empirical evidence on the employment effects of minimum wage increases and outline the implications of increasing the minimum wage from $14 to $15 per hour. Discuss the extent to which the minimum wage policy has been effective in reducing poverty and producing a more equitable distribution of income.