How Wages are Determined Unit 9.1

Labor: Supply and Demand Wages Compensation for labor Not Profit Equilibrium Wages The point at which the amount of labor demanded and the amount of labor supplied are the same at this wage. Derived Demand The employer does not want to hire people he does not need

Why Wages Differ Wage Rates Human Capital Working Conditions According to standard economics, money is used to incentivize work, and a business will pay more for performance. To recruit top talent, it is considered normal to increase the amount of pay on an increasing scale, based on experience, past performance, and general ability. This scale increases at a non-linear rate for the very top performers. Human Capital We are all different in our skills and abilities Working Conditions Some jobs are dangerous, some require special conditions or long contracts, travel Discrimination Government Actions Minimum wages Licenses

Wages and Benefits in the Labor Market Typically when labor is abundant, wages and benefits are decreased. These kinds of situations are called surpluses of labor. When the labor market tightens, companies have to compete to get labor, so wages and benefits increase in order to attract workers. Since businesses tend to like labor surpluses (because they lower wages), a labor surplus is generally thought of as good within business circles. Globalization has this effect on the labor supply, and this is used to push down labor costs. Percentage of Wages Paid During Maternity Leave around the World

Income Distribution Income and wealth are different measures of overall economic wellbeing. Income represents moneys acquired during a year, wealth represents the value of all assets.

Labor: Benefits Benefits are a tricky issue, since the cost of some benefits, especially medical insurance, has gone up so radically, it becomes very difficult for businesses to continue to offer these benefits. As costs go up, it is becoming common for employers to reduce benefits to workers, in order to keep total costs down and remain competitive on the market.