Micro Chapter 13 Earnings, Productivity, and the Job Market

3 Learning Goals 1) 1)Determine the reasons why earnings differ between jobs 2) 2)Analyze the practice of employment discrimination 3) 3)Relate worker productivity to earnings

Why Do Earnings Differ?

Wages differ for two general reasons: (1) Differences in workers (2) Differences in jobs

(1) Differences in workers: (a) Productivity –If MP increases, then MRP increases so the individual is more valuable to the firm (b) Preferences –Preferences can impact productivity (c) Race and gender –This is not necessarily discrimination –This can also increase wages

Much of the earnings differential can be explained with supply and demand analysis Graph:

(2) Differences in jobs: (a) Compensating wage differentials –How much more salary do you require for: –A high risk job? –A job in an undesirable location? –Environmental factors? (b) Labor immobility

The Economics of Employment Discrimination

Read this section on your own and understand the conclusions: 1)After adjusting for productivity-related factors such as education and experience, there is much less discrimination than there appears to be 2)Usually, discrimination is costly and market forces will put discriminating firms at a disadvantage to compete

Link Between Productivity and Earnings

How can you increase productivity? (1) Increase nonhuman capital (2) Improve people’s skills (3) Advance technology

Main points: 1)Higher output is the source of higher earnings 2)Increasing productivity is therefore the key ingredient to increasing earnings

2008 Median Earnings (Inflation adjusted, for population over 25 years old) Less than H.S.$20,268 H.S. Graduate (also GED)$27,479 Some College (or Associate degree)$33,447 Bachelor Degree$47,094 Graduate or Professional Degree$62,179