1. Determining Wages
Chapter 15
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2. Labor & Wages
Labor – blue-collar & white-collar workers, and small business owners
Wages- the price that employers pay for labor. Includes salaries as well as fringe benefits
Nominal wage
Real wage
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3. General Level of Wages Includes a wide range of different wage rates
Wages differ among nations, regions, occupations, and individuals
Also differ by gender, race, and ethnic background
3. Why are real wages high in the U.S.? The demand for labor in our country is large compared to the supply of labor; therefore, the wages go up
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4. Role of Productivity
If a person is more productive, there is a greater demand for their services.
If total supply of labor remains fixed, wages will rise.
Reasons for high productivity
Plentiful capital
Access to abundant natural resources
Advanced technology
Labor quality
Intangible factors
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5. Purely competitive labor market
Many firms compete with one another in hiring labor
Many qualified workers with identical skills supplies that type of labor
Individual firms & individual workers are “wage takers”
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6. Market demand for labor
Firms don’t have to be in the same industry
Add the demand curves of the individual firms
Market supply- employers must pay higher wage rates to obtain more workers. They may need to bid workers away from other industries.
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7. Labor market equilibrium
Intersection of market labor demand and market supply curves
This determines wage rate and level of employment
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8. Monopsony model Single employer of labor Characteristics Single buyer
Labor – immobile
Firm = “wage maker”
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9. MRC Higher Than the Wage Rate
When higher wages are paid to new workers, current workers need to get paid that wage as well.
Uniform wages brings the mrc higher than the wage rate
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10. MRC Table Units of Labor Wage Rate Total Labor Cost MRC 5 $0 --- 1 6 25 $0
--- 1 6 2 7 14 8 3 24 10 4 9 36 12 50 11 66 16
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11. Three Union Models Unions bargain with a large number of employers.
Goals- better wages, hours, and working conditions for their members
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12. Increasing Demand For Labor
Increase product demand
Increase productivity
Raise the price of other inputs
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13. Craft Union Model
Unions can boost wage rates by reducing the supply of labor
Unions have supported legislation that has:
Restricted immigration
Reduced child labor
Encouraged compulsory retirement
Enforced a shorter workweek
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14. Craft unions- members possess a particular skill (I. e
Craft unions- members possess a particular skill (I.e. carpenters, electricians)
Exclusive unionism- by excluding workers from unions and from the labor supply, craft unions succeed in elevating wage rates.
Occupational licensing- laws are passed by government stating that you can practice their trade only if they meet certain requirements.
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15. Industrial Unions
Unions seek to organize all available workers (skilled & unskilled).
Limited membership policies would make nonunion workers available to employers.
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16. Union Wages Union members usually get 15% higher wages over non-union
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17. Minimum Wage
Fair Labor Standards Act (1938) allowed minimum wage and overtime
Purpose- provide a “living wage” that will allow less skilled workers to earn enough to escape poverty
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18. Minimum Wage Cons Pros Less people hired
Increase wages without increasing unemployment
May produce more jobs
Increase labor productivity
Reduce labor turnover
Cons
Less people hired
Higher labor costs may force some firms out of business
Better to have a job at a lower wage
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19. Marginal Revenue Productivity
Demand for labor depends on how much the worker contributes to employers revenue
Labor productivity
Demand for the products produced
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20. Noncompeting Groups Workers representing different occupations Ability
Education & Training
Investment in human capital
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21. Compensating Differences
Must be compensated for nonmonetary differences in the job
Job may be unattractive (I.e. garbage man)
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22. Market Imperfections Lack of job information Geographic immobility
Unions and government restraints
Discrimination
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23. Pay for Performance Piece rates Commissions Royalties
Bonuses, stock options, profit sharing
Efficiency wages
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