Chapter 7 Labor and the Economy

Section A: How Wages Are Set Derived Demand: Demand for factors resulting from Demand for products Diminishing Returns: decreasing productivity for each new worker. –Why does this happen? Diminishing Marginal Productivity- –Amount each new worker is adding –Decreasing over time

Marginal physical product- –how much is added to Total Product.

Supply and Demand for Labor Labor force participation (law of supply)

Equilibrium Wage Rate

Real vs. Money Wages Is it possible to make more money but be able to buy less? Money Wages – Actual dollar amount Real Wages –Amount you can buy –Inflation adjusted

Section B Labor Unions in the Economy Labor Unions –Improve working conditions –Collective action –Result of Industrial Revolution Types of Unions –Craft union (horizontal) –Industrial union (vertical)

Labor Legislation Clayton Act 1914 Stopped use of Sherman Anti-trust (prevent restraint of trade) against unions Wagner Act 1935 protects rights of unions to organize and bargain.

Taft-Hartley Act Limited unions ability to disrupt economy -Federal employee strikes limited -banned closed-shops (right-to-work laws) -Presidential injunctions

Union Membership Beginnings – %Strongest – % Weakening –<20%

Section C Labor-Management Relations Collective Bargaining –Union Weapons SlowdownsBoycotts Sit-down strikes Strikes Picket Lines Union Labels Political Action Committees

Management Weapons –Injunctions –Lockouts –Strikebreakers –Relocation

Government Tools –Mediation –Arbitration

Section D: Minimum Wages and Employment Fair Labor Standards Act –First min. wage Reaction by firms –Accept smaller profit –Increase prices –Pay no more than min. wage –Lay-offs –Delay New Hires –New Tech. (inc. prod.) –Replace low skill with high skill –Close