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2. 9
Section 1
What Determines Wages?
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3. Supply and Demand in the Labor Market
The price of labor is called the wage rate.
Supply of labor
Demand for labor
Pe = We
Q = quantity of labor
Labor = employed + unemployed
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4. Exhibit 9-3 from the Student Text
(a) At $9 per hour, the number of people willing and able to work (7,000) is greater than the number employers are willing and able to hire (3,000). We conclude that $9 is not the equilibrium wage rate. (b) At $7 per hour, the number of people employers are willing and able to hire (6,000) is greater than the number willing and able to work (4,000). We conclude that $7 is not the equilibrium wage rate. (c) At $7.75 per hour, the number of people willing and able to work (5,000) is the same as the number employers are willing and able to hire (5,000). We conclude that $7.75 is the equilibrium wage rate.
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5. Why Do Some People Earn More than Others
Wage rates may differ because the supply of different types of labor is not the same.
They may also differ because the demand for different types of labor is not the same.
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6. Are Money Benefits the Only Thing That Matters?
Coworkers
distance between home and work
hours worked per week
vacation time.
Benefits
Work environment
Social
services
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7. The Demand for a Good = demand for Workers = Wage Rates
Derived demand is demand that is the result of some other demand.
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8. What Will You Earn? Wage rates for different occupations vary. .
One is the demand for your labor services.
The other is the supply of these labor services (i.e., other qualified people).
Two factors will make the demand for your labor services high:
The demand for the good you produce.
Your productivity.
Your productivity can be influenced by many factors, such as natural ability, education, and training.
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9. Government and the Minimum Wage
The minimum wage law is a federal law that specifies the lowest hourly wage rate that can be paid to workers.
Great Depression.
25 cents an hour.
The minimum wage rate may be higher or lower than We
Living Wage
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10. Two Types of Wages: Nominal and Real
Nominal wage = current wage = gross wage
Real wage is corrected for inflation and deflation
Based on CPI (consumer price index)
Bread basket for a family of 4 in an urban area
Real Wage = Nominal wage / CPI
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11. Two Types of Wages: Nominal and Real (cont.)
The government measures the “average price” of goods that people usually buy.
This average price is called a price index.
One well-known index is the Consumer Price Index (CPI).
The CPI is computed annually.
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12. Labor and Government Regulation9
Section 2
Labor and Government Regulation
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13. Some Practices of Labor Unions
A labor union is an organization
increase its members’ wages
improve its members’ working conditions.
increase demand for its labor
decrease supply for its labor
both.
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14. Some Practices of Labor Unions (cont.)
closed shops
hired only union members.
Taft-Hartley Act of 1947 made closed shops illegal.
The Taft-Hartley Act
states the right to pass right-to-work laws.
Twenty-four states have passed right-to-work laws.
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15. Some Practices of Labor Unions (cont.)
union shop
join the union within a certain period after being hired.
Approximately 11.4 percent of all workers are members of unions.
Labor unions work by gaining control over the supply of labor.
strike.
Work slow-down
Sit-in
Typical union demands ask for increased wages, increased benefits, or decreased hours.
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16. Unions’ Effects on Union and Nonunion Wages
Unions can have an interesting effect on both union and nonunion wages.
union is able to command higher wages, the employer will seek to reduce its number of employees.
Employees who are fired will join the nonunion labor market;
Supply of nonunion labor increases;
Wages decrease.
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17. Two Views of Labor Unions
The traditional view is that labor unions are an obstacle to establishing reasonable work standards.
Thus, companies that employ union labor are less competitive.
A newer view states that the labor union is a valuable collective voice for its members.
union firms have a higher rate of productivity.
Productivity may increase because union members have a voice and feel more secure in their work.
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18. A Brief History of the Labor Movement
The Knights of Labor had approximately 800,000 members by 1886.
This group welcomed anyone who worked for a living.
The American Federation of Labor (AFL) grew to 5 million skilled labor members in 1930.
Unions= illegal conspiracies, and
union leaders prosecuted and sued.
In 1842, the Supreme Court of Massachusetts ruled that unions were not illegal, but that certain practices were.
Injunctions = court order to stop behavior
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19. A Brief History of the Labor Movement (cont.)
Norris-LaGuardia Act in 1932 limited the use of injunctions.
workers should be “free from the interference, restraint, or coercion of employers” in choosing their union representatives.
In 1938, John L. Lewis of the United Mine Workers left the AFL and formed the Congress of Industrial Organizations (CIO).
The CIO successfully unionized the steel, rubber, textile, meatpacking, and automobile industries.
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20. A Brief History of the Labor Movement (cont.)
In 1955, the AFL and CIO merged.
The Landrum-Griffin Act was passed in 1959
policing the internal affairs of labor unions.
Public employee unions grew in popularity in the 1960s and 1970s.
Police
firefighters
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21. Other Government Regulation Impact Labor
The Occupational Safety and Health Administration (OSHA) protects workers against occupational injuries and illnesses.
The Consumer Product Safety Commission (CPSC) specifies minimum standards for potentially unsafe products.
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22. Other Government Regulation (cont.)
The Environmental Protection Agency (EPA) regulates the amount of pollution businesses can emit into the air or rivers.
Cost
Environmental safety: internal and external
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