Labor, Wages, and Earnings Chapter 13

Nominal vs Real Wages Nominal Wage – amount of money received Real Wage – Nominal Wage – Inflation COLA – Cost of Living Adjustments that automatically increase wages and keep real wages from decreasing

Purely Competitive Labor Market Graph: Market and Firm

Monopsony – a resource market where an employer has monopolistic hiring power Upsloping Labor Supply Curve MRC higher than the wage rate – MRC of the new worker is the new worker’s wage plus the amount necessary to bring the wage rate of all current employees up to the new wage level The monopsonist maximizes its profits by hiring a smaller number of workers and paying less than the competitive wage Chart

Monopsony (cont) Graph

Union Models – Demand Enhancement Model Unions want to increase the demand for labor – higher wages, more jobs Increased product demand leads to increased labor demand – buy union, protectionism policies, lobbying for union projects Unions seek to raise the price of substitute labor – support of minimum wage laws Graph

Union Model – Exclusive Craft Union Unions can raise wages by reducing the supply of labor Unions support restricting immigration, child labor laws, and overtime laws Exclusive Craft Unions restrict membership to maintain wages – Carpenters Union, IBEW Graph

Union Model – Inclusive or Industrial Model These union seek all workers as members Below a certain wage rate the union will supply no labor. Employers become wage takers Graph

Minimum Wage Minimum Wage acts as a price floor in a labor market. Graph Issue – Is the demand for minimum wage labor highly inelastic?