Lecture #15: Labor, Employment & Wages

New info for the rest of the semester: Notes ARE REQUIRED but Cornell notes are NOT required (choose your own format) Basics are not required We will still have quizzes You can choose if you want to do the Basics as a study guide

Today’s Objective Students will understand what determines wages and have a basic understanding of unions. Essential Learning: What is the correlation between skill level and income, and how do unions protect worker’s rights?

CA STATE STANDARDS 12e.1.2 Explain opportunity cost and marginal benefit and marginal cost. 12e.1.3 Identify the difference between monetary and nonmonetary incentives and how changes in incentives cause changes in behavior. 12e.3.1 Understand how the role of government in a market economy often includes providing for national defense, addressing environmental concerns, defining and enforcing property rights, attempting to make markets more competitive, and protecting consumers' rights. 12e.3.4 Understand the aims and tools of monetary policy and their influence on economic activity (e.g., the Federal Reserve). 12e.4 Students analyze the elements of the U.S. labor market in a global setting. 12e.4.1 Understand the operations of the labor market, including the circumstances surrounding the establishment of principal American labor unions, procedures that unions use to gain benefits for their members, the effects of unionization, the minimum wage, and unemployment insurance. 12e.4.2 Describe the current economy and labor market, including the types of goods and services produced, the types of skills workers need, the effects of rapid technological change, and the impact of international competition. 12e.4.3 Discuss wage differences among jobs and professions, using the laws of demand and supply and the concept of productivity.

What determines wages? Supply & Demand in the Labor Market The price of labor is called the wage rate.

How the Equilibrium Wage Rate is Established? Equilibrium Wage Rate The equilibrium wage rate is the wage at which the quantity demanded of labor = the quantity supplied of labor. Wage Rate Number of Workers $7.75 5,000 Supply Demand

How the Equilibrium Wage Rate is Established? Equilibrium Wage Rate When the quantity demanded of labor is greater than the quantity supplied, there is a shortage of labor & wage rates rise. Wage Rate Number of Workers $9.00 3,000 Supply Demand 7,000

Why do some people earn more than others? Wage Rates Wage rates differ b/c the supply for different types of labor is not the same. They may also differ b/c the demand is also not the same.

How does wage differ in a Socialist Society and a Capitalist Society?

Are money benefits the only thing that matters? Money— not the only thing that matters! A higher income is not the only thing that matters to people. Other influences include: coworkers distance between home & work hours worked per week vacation time

The demand for a good and wage rates Derived Demand If demand for a product decreases, then demand for employees to produce that product will also decrease. Derived Demand = is demand that is the result of some other demand

What will you earn? Wages Wage rates differ by occupation Will also depend on: The demand for the good you produce Your productivity Which is influenced by your natural ability, education & training The supply of qualified people also helps determine wages

Going to college pays! Notice how men still earn more than women!

Discrimination in the work place still exists! Look at how wages differ between gender and ethnicity!

Read articles on Women’s Earnings (Socratic Seminar on Friday)

Minimum Wage Laws Min. Wages Minimum Wage law is a federal law that specifies the lowest hourly wage rate that can be paid to workers. Originally passed during the Great Depression at 25 cents/hour $ Summer of 2007 $ Summer of 2008 $ Summer of 2009 California Minimum wage is higher: why?

Minimum Wage Laws Minimum Wages States can set their rate higher than the federal rate. California has now increased its minimum wage to $8.00!

Which industry has the most Minimum Wage Earners?

States with minimum wage rates higher than the Federal States with minimum wage rates the same as the Federal States with no minimum wage law States with minimum wage rates lower than the Federal American Samoa has special minimum wage rates Effective July 24, 2008

Effective January 2009

State or other jurisdiction 2008 Federal (FLSA) 6.55 Will be 7.25 on 7/24/09 Alabama… Alaska7.15 Arizona6.90 Arkansas6.25 California8.00 Colorado7.02 Connecticut7.65 Delaware7.15 Florida6.79 Georgia5.15 Hawaii7.25 Idaho6.55 Illinois7.75 Indiana 6.55 Iowa7.25 Kansas2.65 Kentucky 6.55 Louisiana… Maine7.25 Maryland 6.55 Mass8.00 Michigan7.40 Minnesota Mississippi Missouri 6.65 Montana Nebraska 6.55 Nevada6.85 New Hampshire 6.55 New Jersey7.15 New Mexico6.50 New York7.15 North Carolina 6.55 North Dakota 6.55 Ohio 7.00 Oklahoma 6.55 Oregon7.95 Pennsylvania7.15 Rhode Island7.40 South Carolina … South Dakota 6.55 Tennessee… Texas 6.55 Utah 6.55 Vermont7.68 Virginia 6.55 Washington8.07 West Virginia 7.25 Wisconsin6.50 Wyoming5.15 District of Columbia 7.55 Guam5.85 Puerto Rico 4.10 U.S. Virgin Islands

State or other jurisdiction 2009 Federal (FLSA) 6.55 Will be 7.25 on 7/24/09 Alabama … Alaska 7.15 Arizona 7.25 Arkansas 6.25 California 8.00 Colorado 7.28 Connecticu t on 1/1/10 Delaware 7.15 Florida 7.21 Georgia 5.15 Hawaii 7.25 Idaho on 7/24/09 Illinois on 7/1/ on 7/1/10 Indiana on 7/24/09 Iowa 7.25 Kansas 2.65 Kentucky on 7/1/09 Louisiana … Maine on 10/1/09 Maryland on 7/24/09 Mass 8.00 Michigan 7.40 Minnesota Mississippi Missouri 7.05 Montana on 7/24/09 Nebraska on 7/24/09 Nevada 6.85 New Hampshire 7.25 New Jersey on 7/24/09 New Mexico 7.50 New York on 7/24/09 North Carolina on 7/24/09 North Dakota on 7/24/09 Ohio 7.30 Oklahoma on 7/24/09 If less than 10 employees $2.00/hr Oregon 8.40 Pennsylvania on 7/24/09 Rhode Island 7.40 South Carolina … South Dakota on 7/24/09 Tennessee … Texas on 7/24/09 Utah on 7/24/09 Vermont 8.06 Virginia on 7/24/09 Washington 8.55 West Virginia 7.25 Wisconsin 6.50 Wyoming 5.15 District of Columbia 7.55 Guam 5.85 Puerto Rico 4.10 U.S. Virgin Islands

2007 chart: Workers that get tipped don’t always get the full minimum wage!

2 Types of Wages: Money & Real Money & Real Wages Nominal Wage/Money Wage = How much money a person gets Real Wage = how much a person can buy with their wage rate A person’s money wage can rise but their real wage falls. This happens when the price of goods & services increases more than wages. The gov’t measures the “average price” of a variety of goods called the price index.

2 Types of Wages: Money & Real Consumer Price Index (CPI) Consumer Price Index (CPI) is computed annually Real Wage = Money Wage CPI Even though your money wage increased this year— your real wage decreased b/c the average cost of the CPI basket of goods increased by such a large amount

Labor & Government Regulation Labor Union Is an organization that seeks to increase its members’ wages & improve working conditions To get higher pay It can try to increase demand for labor Can be done by advertising— “Made in the U.S.A” It can try to decrease supply for labor The fewer people qualified to perform a job— means the more money people can demand in wages

Labor & Government Regulation Closed Shops In the past, unions supported Closed Shops Organizations that only hired union workers The Taft-Hartley Act of 1947 made them illegal.

Labor & Government Regulation Right- to-work laws The Taft-Hartley Act also gave states the right to pass Right-to- Work Laws These states prohibit employers from requiring employees to join a union as a condition of employment 22 states have passed right-to- work laws

Labor & Government Regulation Union Shop Legal in many states Is an organization that requires employees to join the union within a certain period after being hired Approx 12.5% of all workers are member of unions

Labor & Government Regulation Strike Labor unions work by gaining control over the supply of labor Union members can pressure an employer by calling a strike Strike = an agreement to stop working until the employer agrees to do what the union demands Increased wages Increased benefits Decreased hours

Unions’ Effects Effect on Wages If a union gets higher wages, employers will seek to reduce the number of employees Employees who get fired will join the nonunion labor market Nonunion labor supply increases— causing wages of nonunion jobs to dip!

2 views of Labor Unions Views Traditional view: labor unions are an obstacle to establishing reasonable working standards Companies that employ union labor are less competitive Newer view: Labor union is a valuable collective voice for its members Some evidence shows that union firms are more productive—b/c members have a voice & feel more secure at work!

Essential Learning: What is the correlation between skill level and income, and how do unions protect worker’s rights?

Review—True or False 1. The price of labor is called the derived demand. 2. The equilibrium wage rate is established where the quantity demanded of labor equals the quantity supplied of labor. 3. Location could be a nonmoney benefit. 4. If the demand for a good increases, the wage fro the producers of that good decreases. 5. The minimum wage law sets a wage floor.

Review—True or False 1. The price of labor is called the derived demand. FALSE 2. The equilibrium wage rate is established where the quantity demanded of labor equals the quantity supplied of labor. TRUE 3. Location could be a nonmoney benefit. TRUE 4. If the demand for a good increases, the wage fro the producers of that good decreases. FALSE 5. The minimum wage law sets a wage floor. TRUE

Review—True or False 1. A union can raise the demand for a product through advertising. 2. Labor unions try to increase the labor supply. 3. On average, union workers receive higher pay than comparable nonunion workers do.

Review—True or False 1. A union can raise the demand for a product through advertising. TRUE 2. Labor unions try to increase the labor supply. FALSE 3. On average, union workers receive higher pay than comparable nonunion workers do. TRUE