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9 Section 1 What Determines Wages? © EMC Publishing, LLC

Supply and Demand in the Labor Market The price of labor is called the wage rate. Supply of labor Demand for labor Pe = We Q = quantity of labor Labor = employed + unemployed © EMC Publishing, LLC

Exhibit 9-3 from the Student Text (a) At $9 per hour, the number of people willing and able to work (7,000) is greater than the number employers are willing and able to hire (3,000). We conclude that $9 is not the equilibrium wage rate. (b) At $7 per hour, the number of people employers are willing and able to hire (6,000) is greater than the number willing and able to work (4,000). We conclude that $7 is not the equilibrium wage rate. (c) At $7.75 per hour, the number of people willing and able to work (5,000) is the same as the number employers are willing and able to hire (5,000). We conclude that $7.75 is the equilibrium wage rate. © EMC Publishing, LLC

Why Do Some People Earn More than Others Wage rates may differ because the supply of different types of labor is not the same. They may also differ because the demand for different types of labor is not the same. © EMC Publishing, LLC

Are Money Benefits the Only Thing That Matters? Coworkers distance between home and work hours worked per week vacation time. Benefits Work environment Social services © EMC Publishing, LLC

The Demand for a Good = demand for Workers = Wage Rates Derived demand is demand that is the result of some other demand. © EMC Publishing, LLC

What Will You Earn? Wage rates for different occupations vary. . One is the demand for your labor services. The other is the supply of these labor services (i.e., other qualified people). Two factors will make the demand for your labor services high: The demand for the good you produce. Your productivity. Your productivity can be influenced by many factors, such as natural ability, education, and training. © EMC Publishing, LLC

Government and the Minimum Wage The minimum wage law is a federal law that specifies the lowest hourly wage rate that can be paid to workers. Great Depression. 25 cents an hour. The minimum wage rate may be higher or lower than We Living Wage © EMC Publishing, LLC

Two Types of Wages: Nominal and Real Nominal wage = current wage = gross wage Real wage is corrected for inflation and deflation Based on CPI (consumer price index) Bread basket for a family of 4 in an urban area Real Wage = Nominal wage / CPI © EMC Publishing, LLC

Two Types of Wages: Nominal and Real (cont.) The government measures the “average price” of goods that people usually buy. This average price is called a price index. One well-known index is the Consumer Price Index (CPI). The CPI is computed annually. © EMC Publishing, LLC

Labor and Government Regulation 9 Section 2 Labor and Government Regulation © EMC Publishing, LLC

Some Practices of Labor Unions A labor union is an organization increase its members’ wages improve its members’ working conditions. increase demand for its labor decrease supply for its labor both. © EMC Publishing, LLC

Some Practices of Labor Unions (cont.) closed shops hired only union members. Taft-Hartley Act of 1947 made closed shops illegal. The Taft-Hartley Act states the right to pass right-to-work laws. Twenty-four states have passed right-to-work laws. © EMC Publishing, LLC

Some Practices of Labor Unions (cont.) union shop join the union within a certain period after being hired. Approximately 11.4 percent of all workers are members of unions. Labor unions work by gaining control over the supply of labor. strike. Work slow-down Sit-in Typical union demands ask for increased wages, increased benefits, or decreased hours. © EMC Publishing, LLC

Unions’ Effects on Union and Nonunion Wages Unions can have an interesting effect on both union and nonunion wages. union is able to command higher wages, the employer will seek to reduce its number of employees. Employees who are fired will join the nonunion labor market; Supply of nonunion labor increases; Wages decrease. © EMC Publishing, LLC

Two Views of Labor Unions The traditional view is that labor unions are an obstacle to establishing reasonable work standards. Thus, companies that employ union labor are less competitive. A newer view states that the labor union is a valuable collective voice for its members. union firms have a higher rate of productivity. Productivity may increase because union members have a voice and feel more secure in their work. © EMC Publishing, LLC

A Brief History of the Labor Movement The Knights of Labor had approximately 800,000 members by 1886. This group welcomed anyone who worked for a living. The American Federation of Labor (AFL) grew to 5 million skilled labor members in 1930. Unions= illegal conspiracies, and union leaders prosecuted and sued. In 1842, the Supreme Court of Massachusetts ruled that unions were not illegal, but that certain practices were. Injunctions = court order to stop behavior © EMC Publishing, LLC

A Brief History of the Labor Movement (cont.) Norris-LaGuardia Act in 1932 limited the use of injunctions. workers should be “free from the interference, restraint, or coercion of employers” in choosing their union representatives. In 1938, John L. Lewis of the United Mine Workers left the AFL and formed the Congress of Industrial Organizations (CIO). The CIO successfully unionized the steel, rubber, textile, meatpacking, and automobile industries. © EMC Publishing, LLC

A Brief History of the Labor Movement (cont.) In 1955, the AFL and CIO merged. The Landrum-Griffin Act was passed in 1959 policing the internal affairs of labor unions. Public employee unions grew in popularity in the 1960s and 1970s. Police firefighters © EMC Publishing, LLC

Other Government Regulation Impact Labor The Occupational Safety and Health Administration (OSHA) protects workers against occupational injuries and illnesses. The Consumer Product Safety Commission (CPSC) specifies minimum standards for potentially unsafe products. © EMC Publishing, LLC

Other Government Regulation (cont.) The Environmental Protection Agency (EPA) regulates the amount of pollution businesses can emit into the air or rivers. Cost Environmental safety: internal and external © EMC Publishing, LLC