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13 - 1 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions Wage Determination.

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Presentation on theme: "13 - 1 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions Wage Determination."— Presentation transcript:

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2 13 - 1 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions Wage Determination

3 13 - 2 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions Wages Price paid for labor Wage Rate = MRC WAGES, SALARY AND EARNINGS

4 13 - 3 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions PURELY COMPETITIVE LABOR MARKET Market Demand Many firms Market Supply Numerous willing and able workers “Wage Taker” Behavior

5 13 - 4 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions Labor Costs PURELY COMPETITIVE LABOR MARKET EQUILIBRIUM Labor Market S D (∑ mrp’s) WcWc (1000) Individual Firm S = MRC D = MRP WcWc Q W Q ($10) (5) $10 W

6 13 - 5 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions DETERMINANTS OF RESOURCE DEMAND Changes in Product Demand Changes in Productivity More Resources Better Resources Technology

7 13 - 6 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions Changes in the price of substitute resources Substitution effect + Output effect = Net effect Changes in the price of complementary resources DETERMINANTS OF RESOURCE DEMAND

8 13 - 7 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions MONOPSONY MODEL Single buyer for a type of labor “Wage Maker” Behavior

9 13 - 8 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions W S Q MONOPSONISTIC LABOR MARKET

10 13 - 9 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions D = MRP S WmWm MRC QmQm MONOPSONISTIC LABOR MARKET MRP = MRC Q m units of labor hired W Q

11 13 - 10 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions D = MRP S WmWm MRC WcWc QmQm QcQc The competitive solution would result in a higher wage and greater employment. MONOPSONISTIC LABOR MARKET W Q

12 13 - 11 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WAGE DIFFERENTIALS Marginal Revenue Productivity Ability Education and Training Investment in Human Capital

13 13 - 12 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions

14 13 - 13 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions MINIMUM WAGE CONTROVERSY Case Against Minimum Wage

15 13 - 14 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions How the Minimum Wage Affects the Labor Market Q W 0 Labor supply Labor surplus (unemployment) Labor demand Minimum wage Quantity demanded Quantity supplied

16 13 - 15 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions MINIMUM WAGE CONTROVERSY Case Against Minimum Wage Unemployment Some small businesses shutdown Benefits those who don’t need it

17 13 - 16 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions MINIMUM WAGE CONTROVERSY Case For Minimum Wage Fights monopsony Increase productivity Reduce turnover

18 13 - 17 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions MINIMUM WAGE CONTROVERSY Evidence and Conclusions Creates unemployment Labor welfare increases Does stop monopsonists

19 13 - 18 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions D1D1 S WcWc QcQc THREE UNION MODELS Demand-Enhancement Model W Q

20 13 - 19 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu QuQu D1D1 S WcWc QcQc D2D2...by increasing product demand THREE UNION MODELS Demand-Enhancement Model W Q

21 13 - 20 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu QuQu D1D1 S WcWc QcQc D2D2...by increasing product demand...by increasing productivity THREE UNION MODELS Demand-Enhancement Model W Q

22 13 - 21 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu QuQu D1D1 S WcWc QcQc D2D2...by increasing product demand...by increasing productivity...by increasing the price of substitutes THREE UNION MODELS Demand-Enhancement Model W Q

23 13 - 22 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions

24 13 - 23 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions D WcWc QcQc THREE UNION MODELS Exclusive or Craft Model S1S1 W Q

25 13 - 24 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu D WcWc QcQc THREE UNION MODELS Exclusive or Craft Model QuQu S1S1...restrictive membership policies S2S2 W Q

26 13 - 25 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu D WcWc QcQc THREE UNION MODELS Exclusive or Craft Model QuQu S1S1...restrictive membership policies...restricting labor supply of the economy as a whole S2S2 W Q

27 13 - 26 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu D WcWc QcQc THREE UNION MODELS Exclusive or Craft Model QuQu S1S1...restrictive membership policies...restricting labor supply of the economy as a whole …occupational licensing S2S2 W Q

28 13 - 27 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions

29 13 - 28 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WcWc QcQc THREE UNION MODELS Inclusive or Industrial Model D S...by organizing virtually all workers and thereby control of the supply curve for labor causing… W Q

30 13 - 29 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WuWu D WcWc QcQc THREE UNION MODELS Inclusive or Industrial Model QuQu D...by organizing virtually all workers and thereby control of the supply curve for labor S QeQe W Q

31 13 - 30 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions

32 13 - 31 Labor, Wages, and Earnings Purely Competitive Labor Market Monopsony Model Minimum Wage Controversy Unions WAGE INCREASES AND UNEMPLOYMENT Union members receive about 15% higher wages Unions create unemployment

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