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Some university graduates may have higher wage expectations than others. Under the assumption of perfect competition,...

Some university graduates may have higher wage expectations than others. Under the assumption of perfect competition, how would an efficient labour market allocate jobs among graduates with different wage expectations? Is this what happens in reality?

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Answer #1

Under perfect competition, firms have fixed equilibrium wage which they offer to their employees. Even if people have different wage expectation, they end up getting same wage rate in the same firm.

Under perfect competition, wage are determined by the supply and demand of labor. The point at which they intersects, determines the equilibrium wage and labor in the market.

In reality, some talented individuals get higher wage rate than others as firms needs people who can work more efficiently than others. They get higher wage than equilibrium wage.

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