Wage Determination Lesson 2

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Presentation transcript:

Wage Determination Lesson 2 A2 Economics Wage Determination Lesson 2

Aims and Objectives Aim: To understand wage determination Objectives: Explain economic rent and transfer earnings/ Be able to draw economic rent and transfer earnings diagrams. Analyse the football labour market.

Starter Define economic rent Define transfer earnings

Case Study: Premiership Footballers Premiership footballers earn large economic rents. Imagine what the next best job for Rio Ferdinand would be…. Rent= £109,750 pw Transfer Earnings £250 pw £110,000 pw

Economic Rent and Transfer Earnings Total Earnings = OWQA Real Wage Rate/MRP S Economic Rent = WAB A W Transfer Earnings = OABQ B D=MRP O Q Quantity of Labour

Inelastic Labour Supply Leads to High Levels of Economic Rent SI Real Wage Rate/MRP SE SI Economic Rent = A+B Transfer Earnings = C W SE Economic Rent = A Transfer Earnings = B+C A D=MRP B C O Q Quantity of Labour

Rent and Transfer Earnings Under Extreme Elasticity Conditions Real Wage Rate S Real Wage Rate W1 S W1 Economic Rent Transfer Earnings D1=MRP D1=MRP Q Quantity of Labour Q Quantity of Labour Perfectly Inelastic Supply Perfectly Elastic Supply

Economic Rent and Transfer Earnings The amount of economic rent earned by individual workers will differ. First worker would have been prepared to work for much less than the wage rate actually paid, so a high proportion of his earnings will be economic rent. The last worker to be employed would have been prepared to work only for the given wage rate and so earns no economic rent.

Case Study: Premiership Footballers The proportion of earnings made up of economic rent depends on the elasticity of supply. Economic rent will be a large proportion of earnings when supply is inelastic.

Case Study: Premiership Footballers Supply will be inelastic as if the changed the wage rate most footballers would continue to supply themselves. Real Wage Rate/MRP S W1 D=MRP O Q1 Quantity of Premiership Footballers

Panorama UK Labour Market Video

Trade Unions An organisation of workers who join together to further their own interests.

Trade Unions http://www.youtube.com/watch?v=0vUDrUYTsHQ&feature=results_video&playnext=1&list=PL4CEC04390392C406 http://www.youtube.com/watch?v=nDvGxNkX4AU http://www.youtube.com/watch?v=wbT5q1Jrfhs&feature=related 3.29 2.00

Trade Unions Discuss how Trade Unions may influence wage rates and the labour supply? Do you feel as though the power of trade unions was lessened by Margaret Thatcher?

Trade Unions Furthers the interests of its members through a process of collective bargaining with employers. Union acts as a monopoly seller of labour to bid up the wage rate of its members.