Labor Economics

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Chapter 3

Competitive equilibrium

In this chapter we will:

  • Describe the basic model of the labor market in competitive equilibrium
  • See how the analysis of interactions between supply and demand offers insight into the problem of fiscal incidence
  • See how the interactions between supply and demand allow us to estimate the elasticity of labor demand. Apply this strategy using data and programs allowing us to replicate the main results of the paper of Acemoglu, Autor, and Lyle (2004) that uses the instrumental variable method to estimate the elasticity of labor demand in a consistent way
  • Understand why, in a situation of perfect competition, the hedonic theory pre- dicts that wage differentials compensate for the laboriousness or danger of tasks
  • Provide evaluations of the value of statistical life
  • Understand how the assortative matching model shows that very small differences in talent can lead to huge remuneration differentials
  • Use the assortative matching model to explain the soaring remuneration of superstars and chief executive officers (CEOs)


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Graphics of the chapter

Reproducing the figures and the main results

Chapter 3 figures


Acemoglu, D., Autor, D., & Lyle, D. (2004) "Women, war and wages: The effect of female labor supply on the wage structure at mid-century" Journal of Political Economy


Teaching slides

  • Presentation Title
  • author
  • Creation date
    • Competitive equilibrium and compensating wage differentials
    • Pierre Cahuc, Stéphane Carcillo, André Zylberberg
    • 12/08/2014