1. Copyright 2011The McGraw-Hill Companies 10-1 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show 10 Wage Determination

2. Copyright 2011The McGraw-Hill Companies 10-2 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Chapter Objectives How Wage Rates and Employment Levels are Determined in Competitive Labour Markets How Monopsony Can Reduce Wages Below Competitive Levels How Unions Can Increase Wage Rates Minimum wages controversy The Major Causes of Wage Differentials The Types, Benefits, and Costs ofPay-for-Performance Plans

3. Copyright 2011The McGraw-Hill Companies 10-3 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Labour Wages and Earnings Wage Rate Nominal Wage Real Wage General Level of Wages Role of Productivity –Plentiful Capital –Access to Abundant Natural Resources –Advanced Technology –Labour Quality –Other Factors

4. Copyright 2011The McGraw-Hill Companies 10-4 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Purely Competitive Labour Market Market Demand for Labour Market Supply for Labour Labour Market Equilibrium MRP = MRC Rule Graphically…

5. Copyright 2011The McGraw-Hill Companies 10-5 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Purely Competitive Labour Market Wage Rate (rand) (R10) W C (R10) W C Labour MarketIndividual Firm Quantity of labour QCQC (1000) 00 D=MRP ( mrps) d=mrp qCqC (5) s=MRC S e c b a 10.1

6. Copyright 2011The McGraw-Hill Companies 10-6 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Monopsony Model Monopsony Upward-Sloping Labour Supply to Firm MRC Higher Than the Wage Rate Equilibrium Wage and Employment Graphically… 10.1 10.2

7. Copyright 2011The McGraw-Hill Companies 10-7 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Monopsony Model Wage Rate (rand) Quantity of labour 0 S MRP MRC c b a WcWc WmWm QmQm QcQc Examples of Monopsony Power Monopsonistic Labour Market 10.1

8. Copyright 2011The McGraw-Hill Companies 10-8 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models Demand Enhancement Model –Increase Product Demand –Increase Productivity –Alter the Price of Other Inputs Wage Rate (rand) Quantity of labour WuWu QcQc QuQu WcWc D1D1 D2D2 S Increase In Demand

9. Copyright 2011The McGraw-Hill Companies 10-9 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models Exclusive or Craft Union Model –Restricted Immigration –Reduced Child Labour –Encouraged Compulsory Retirement –Shorter Hour Workweek –Exclusive Unionism –Occupational Licensing Graphically…

10. Copyright 2011The McGraw-Hill Companies 10-10 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models Exclusive or Craft Union Model Wage Rate (rand) Quantity of labour D S1S1 QcQc WcWc S2S2 WuWu QuQu Decrease In Supply

11. Copyright 2011The McGraw-Hill Companies 10-11 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models Inclusive or Industrial Union Model –Inclusive Unionism Wage Rate (rand) Quantity of Labour D S QcQc WcWc WuWu QuQu QeQe a b e

12. Copyright 2011The McGraw-Hill Companies 10-12 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models Wage Increases and Unemployment Reduced Employment Levels Corrected by: –Growth –Elasticity

13. Copyright 2011The McGraw-Hill Companies 10-13 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Bilateral Monopoly Indeterminate Outcome Desirability of Bilateral Monopoly Wage Rate (rand) Quantity of Labour D=MRP S QcQc WcWc WuWu Q u =Q m MRC WmWm a

14. Copyright 2011The McGraw-Hill Companies 10-14 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Minimum Wage Case Against the Minimum Wage Case For the Minimum Wage State and Locally Set Rates

15. Copyright 2011The McGraw-Hill Companies 10-15 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Wage Differentials Median Salary by Certification South Africa 2009 Chartered Accountant Business Certificate Network Service Technician Engineer Project Manager A+ Service technician B Com R425 489 191 394 137 436 391 337 308 514 143 299 227 453 Source: www.paysacle.com Occupation Annual Average Salary

16. Copyright 2011The McGraw-Hill Companies 10-16 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Wage Differentials Marginal Revenue Productivity Noncompeting Groups –Ability –Education and Training Human Capital Compensating Differences 10.2

17. Copyright 2011The McGraw-Hill Companies 10-17 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Wage Differentials Marginal Revenue Market Imperfections –Lack of Job Information –Geographic Immobility –Unions and Government Restraints –Discrimination

18. Copyright 2011The McGraw-Hill Companies 10-18 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Pay for Performance Incentive Pay Plan Piece Rates Commissions or Royalties Bonuses, Stock Options, and Profit Sharing Efficiency Wages Negative Side-Effects of Pay for Performance 10.3

19. Copyright 2011The McGraw-Hill Companies 10-19 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Are Chief Executive Officers (CEOs) Overpaid? Current CEO Salaries are High Relative to Domestic or Foreign Firms Several Possible Reasons Marginal Productivity Impact by Good Decisions Top Salaries Like Prize Goals for all to Have as a Goal Impacting Many Jobs High Salary Bias by Board Members Due to their Own Previous Performances Some Argue High Salaries are Unjustified and are Unfair to Stockholders Last Word

20. Copyright 2011The McGraw-Hill Companies 10-20 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Key Terms wage rate nominal wage real wage purely competitive labour marketpurely competitive labour market monopsony exclusive unionism occupational licensingoccupational licensing inclusive unionism bilateral monopoly minimum wage wage differentials marginal revenue productivitymarginal revenue productivity noncompeting groupsnoncompeting groups human capital compensating differencescompensating differences incentive pay plan

21. Copyright 2011The McGraw-Hill Companies 10-21 Labour Wages and Earnings Real Wages and Productivity Purely Competitive labour Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Next Chapter Preview… Income, Inequality and Poverty