EARNING Topics: Why businesses hire workers What determines your salary Current issues in the labor market.

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Presentation transcript:

EARNING Topics: Why businesses hire workers What determines your salary Current issues in the labor market

WHY BUSINESSES HIRE WORKERS “Derived demand” Hire workers because help make product or service and earn profit for the business So “labor demand” is derived from product/service demand Labor is an input like machinery, technology, land

BUT WHY DO WORKERS EARN DIFFERENT SALARIES? Tom Brady: $30 million per year

School Teacher: $30,000 to $60,000 per year depending on experience and degree

“ PRODUCTIVE VALUE” VIEW OF LABOR BUSINESS WILL PAY WORKER UP TO THE REVENUE THE WORKER EARNS FOR THE BUSINESS Tom Brady- more wins are worth millions to the Patriots Performers – more ticket sales, movie rentals CEO – decisions affecting $ millions or $billions Grade school teacher – difficult to link their work to future earnings of students

“PRODUCTIVE VALUE” OF LABOR SUMMARIZED BY BABE RUTH Reporter: “Babe, you’re being paid more than the President of the United States. How do you justify that?” Babe: “I had a better year than he did.”

WHAT DETERMINES YOUR “PRODUCTIVE VALUE”? EDUCATION EXPERIENCE ATTITUDE DEDICATION TO JOB CONSISTENCY AT WORK WILLINGNESS TO TAKE RISKS ABILITY TO ADAPT SIZE OF MARKET YOU REACH

BIGGEST OBSERVABLE CHARACTERISTIC: EDUCATION LIFETIME SALARY GENERALLY RISES WITH EDUCATIONAL TRAINING

UNEMPLOYMENT RATE ALSO LOWER WITH MORE EDUCATION

ULTIMATELY, SUPPLY AND DEMAND DETERMINE SALARIES SUPPLY: HOW MANY WORKERS WITH CERTAIN SKILLS ARE AVAILABLE FOR THE JOB DEMAND: HOW MANY WORKERS WITH THOSE SKILLS BUSINESSES WANT TO HIRE

FOUR SUPPLY AND DEMAND COMBINATIONS LOW SUPPLY AND HIGH DEMAND = HIGH SALARY HIGH SUPPLY AND HIGH DEMAND = MODERATE SALARY LOW SUPPLY AND LOW DEMAND= MODERATE SALARY HIGH SUPPLY AND LOW DEMAND= LOW SALARY LOW SUPPLY AND HIGH DEMAND – “SUPERSTARS” IN SPORTS, ENTERTAINMENT, BUSINESS – BIG AUDIENCES AND LIMITED NUMBER OF PEOPLE WITH TALENT AND ABILITIES HIGH SUPPLY AND LOW DEMAND – “ANYONE” CAN DO THE JOB, SO LOW PAY

COMPENSATION IS REALLY WHAT COUNTS COMPENSATION: SALARY PLUS VALUE OF BENEFITS * VACATION TIME * SICK TIME * RETIREMENT PACKAGE * HEALTH CARE PACKAGE EXAMPLE: NC TEACHERS ARE NEAR BOTTOM OF STATES ON SALARY; BUT IN MIDDLE OF STATES ON COMPENSATION

ANOTHER FACTOR IN THE MODERN LABOR MARKET: SPECIALIZATION (ALSO CALLED THE “DIVISION OF LABOR”) WORKERS BENEFIT – PRODUCTIVITY IMPROVES – MORE VALUABLE TO THE BUSINESS BUSINESSES ALSO BENEFIT - OFTEN EASIER FOR BUSINESS TO TRAIN, MONITOR, AND MEASURE OUTPUT; AND: TOTAL OUTPUT RISES ASSEMBLY-LINE VERSUS CRAFTS-MAKER

EARNINGS AND WORK EFFORT EARNINGS VS. LEISURE TRADEOFF WORK MORE – MORE $ WORK MORE – LESS FREE TIME STUDIES SHOW PEOPLE EARNING MORE PER HOUR WORK MORE HOURS – BECAUSE “COST” OF THEIR LEISURE (FREE TIME) IS HIGHER

ISSUE: THE EMERGING “DUMBELL” LABOR MARKET GROWTH IN DEMAND FOR HIGHLY TALENTED AND HIGHLY EDUCATED WORKERS GROWTH IN DEMAND FOR “PERSONAL SERVICE” JOBS – PARTICULARLY IN HEALTH CARE TECHNOLOGY IS REPLACING “MIDDLE SKILL” JOBS INCREASED INEQUALITY PARTICULARLY DIFFICULT FOR YOUNG MALES WITH LIMITED SKILLS

CHANGE IN DISTRIBUTION OF EMPLOYMENT, BY EARNINGS LEVEL

ISSUE: UNIONS LIMIT SUPPY TO INCREASE SALARY MORE PRODUCTIVE WORKERS? CLOSED SHOP, OPEN SHOP MAKE AREAS UNCOMPETITIVE WITH NON-UNION AREAS? MOVEMENT OF AUTO INDUSTRY TO THE SOUTH

ISSUE: MINIMUM WAGE IF ABOVE PRODUCTIVE VALUE OF WORKER, WILL BUSINESS BE MOTIVATED TO SUBSTITUTE TECHNOLOGY AND EQUIPMENT? BETTER OPTION: EARNED INCOME TAX CREDIT?

ISSUE: TECHNOLOGY AND JOBS LABOR HAS A “LOVE-HATE” RELATIONSHIP WITH TECHNOLOGY * IN SHORT RUN CAN REPLACE JOBS (“TECHNOLOGICAL UNEMPLOYMENT) * BUT IN LONG-RUN CAN LOWER PRICES, IMPROVE LIFE, AND CREATE NEW KINDS OF JOBS * BIG QUESTION: WILL NEW JOBS STILL BE CREATED AS TECHNOLOGY ELIMINATES ENTIRE INDUSTRIES?

ISSUE: INTERNATIONAL TRADE HAS MEANT MANY U.S. JOBS GONE TO FOREIGN COUNTRIES ALSO FOREIGN JOBS TO U.S. (BUT NOT 1 FOR 1) BENEFIT FOR U.S. CONSUMERS – LOWER PRICES RE-TRAINING OF WORKFORCE

ISSUE: IMMIGRATION INCREASES SUPPLY OF WORKERS – LOWER SALARIES FOR WORKERS COMPETING WITH IMMIGRANTS? BUT ALSO MEANS MORE TALENT AND SKILLS ENTER THE ECONOMY LOWER PRICES FOR CONSUMERS?

ISSUE: GENDER DIFFERENCES IN PAY “AVERAGE” SALARY DIFFERENCES MEAN NOTHING – MUST ADJUST FOR DIFFERENCES IN EDUCATION, EXPERIENCE, HOURS WORKED, ETC. FEMALE PAY HAS RISEN CLOSER TO MALE PAY AS EDUCATION AND JOB OPENINGS FOR WOMEN HAVE EXPANDED FEMALES STILL HURT BY TIME- OFF FOR CHILD-BEARING

PERHAPS THE ULTIMATE ISSUE: FAMILY CHOICES “TRADITIONAL FAMILY” ALTERED BY CHANGES IN * HOUSEHOLD TECHNOLOGY * ABILITY TO PLAN FAMILY SIZE * ATTRACTION OF FEMALES TO LABOR FORCE HAS LED TO CRUCIAL FAMILY QUESTIONS * WORK VS. TIME WITH CHILDREN * DIVISION OF HOUSEHOLD TASKS * INCREASED INDEPENDENCE OF BOTH PARTNERS

TWO LAST COMMENTS – WHERE YOU LIVE CAN AFFECT YOUR SALARY A BEAUTIFUL PARADISE WHERE EVERYONE WANTS TO LIVE – BUSINESSES CAN OFFER LOWER SALARY LOWER SALARY IS COMPENSATION FOR GREAT NATURAL AMENITIES OR, HIGH COST-OF-LIVING AREA – WILL HAVE TO OFFER HIGHER SALARY

ALSO - PRACTICE MAKES PERFECT DON’T IGNORE THE BENEFITS OF SIMPLE HARD WORK TO IMPROVE YOUR WORK AND PAY ESTIMATED THE EVEN INDIVIDUALS WITH TALENT NEED AT LEAST 10,000 HOURS OF PRACTICE TO REACH THEIR PEAK LEVEL OF PERFORMANC