Wage Differentials

The Minimum Wage Federal government and states set a minimum wage Federal government and states set a minimum wage An effective minimum wage creates a wage floor above the equilibrium wage An effective minimum wage creates a wage floor above the equilibrium wage

The Minimum Wage If the minimum wage is below or equal to the equilibrium wage, it guarantees workers a minimum income and does not result in unemployment If the minimum wage is below or equal to the equilibrium wage, it guarantees workers a minimum income and does not result in unemployment But if it set above the equilibrium wage, unemployment could result But if it set above the equilibrium wage, unemployment could result

YearWageYearWage cents1976$ cents1977$ cents1978$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $7.25

Wage Differentials Hourly wages and annual salaries differ greatly among occupations Hourly wages and annual salaries differ greatly among occupations Due to the effects of supply and demand Due to the effects of supply and demand – Workers in industries with high labor demand or low supply are likely to earn higher wages than workers in industries with low labor demand or high supply

Wage Differentials Also contributing: Also contributing: – human capital, compensation for undesirable work, market imperfections and MRP differences – Tied to community – Union and government licensing – Discrimination – Disability But….models do not take into account salaries of workers paid by the year regardless of daily output or commissions and bonuses that are awarded But….models do not take into account salaries of workers paid by the year regardless of daily output or commissions and bonuses that are awarded

Marginal Revenue Productivity Strength of the labor demand differs among occupations due to how much various occupational groups contribute to the revenue of their respective employers Strength of the labor demand differs among occupations due to how much various occupational groups contribute to the revenue of their respective employers Revenue contribution depends on the workers’ productivity and the strength of the demand for the products that are helping to produce Revenue contribution depends on the workers’ productivity and the strength of the demand for the products that are helping to produce Ex. Professional Athletes Ex. Professional Athletes

Wage Differentials Notes

The Minimum Wage Federal government and states set a minimum wage Federal government and states set a minimum wage

The Minimum Wage If the minimum wage is below or equal to the equilibrium wage, it guarantees workers a minimum income and does not result in unemployment If the minimum wage is below or equal to the equilibrium wage, it guarantees workers a minimum income and does not result in unemployment But if it set above the equilibrium wage, unemployment could result But if it set above the equilibrium wage, unemployment could result

YearWageYearWage cents1976$ cents1977$ cents1978$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $7.25

Wage Differentials Hourly wages and annual salaries differ greatly among occupations Hourly wages and annual salaries differ greatly among occupations Due to the effects of supply and demand Due to the effects of supply and demand

Wage Differentials Also contributing: Also contributing: But….models do not take into account salaries of workers paid by the year regardless of daily output or commissions and bonuses that are awarded But….models do not take into account salaries of workers paid by the year regardless of daily output or commissions and bonuses that are awarded

Marginal Revenue Productivity Strength of the labor demand differs among occupations due to how much various occupational groups contribute to the revenue of their respective employers Strength of the labor demand differs among occupations due to how much various occupational groups contribute to the revenue of their respective employers Revenue contribution depends on the workers’ productivity and the strength of the demand for the products that are helping to produce Revenue contribution depends on the workers’ productivity and the strength of the demand for the products that are helping to produce