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Chris M., M.S.W. Social Work
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Explain each of the following phenomena using the invisible

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Explain each of the following phenomena using the invisible hand or social or political forces:

Firms often pay higher than market wages.

a. This is an example of how labor unions, which have become more prominent in the United States over the past three decades, are a strong political force. They use their power to demand efficiency wages for their members, leading to higher wages than under a simple invisible hand model.

b. This is an example of how political forces, such as comparable worth laws effect the wages that firms pay. Comparable worth laws lead to higher, inefficient wages and are therefore a hindrance to the invisible hand.

c. This is an example of social forces modifying the result of the invisible hand. Firms pay above “market wages” because they want to establish close personal ties with their workers. Doing so can lead employees to work at maximum efficiency and the gain in efficiency may exceed the additional cost. If so, it is known as an “efficiency wage.”

d. This is an example of the failure of the invisible hand. These firms are X-inefficient and can only stay in business if they are a monopsony or a bilateral monopoly

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