2. THE LABOR MARKET Principle #7: People’s skills influence their income.

3. Relative income: why? $5 million $30,000

4. What determines a person’s income? SUPPLY of and DEMAND for their HUMAN CAPITAL

5. High or Low Incomes HHHHigh demand, low supply, high income LLLLow demand, high supply, low income WWWWage is the measurement of relative scarcity of particular types of workers. IIIIf you want a high income, develop skills and knowledge in high demand with low supply. Make yourself stand out in the crowd.

6. MAKE YOURSELF SCARCE!!!!

7. THE NEW LABOR MARKET That was then, this is now THEN NOW GLOBAL COMPETITON, RAPIDLY CHANGING TECHNOLOGY BASIC SKILLS REQUIRED: ASSEMBLY LINE

8. Agricultural Manufacturing Service Knowledge Imagination Information The U.S. Economy

9. The Demand for Labor is a Derived Demand  Business managers hire workers to produce a good or service that can be sold for a profit.  Product demand changes so particular jobs change.  Transferable skills are useful.  Education and training are ongoing.

10. Table I: Then and now The Information/ Knowledge Age Technology change Competition Type of production Role of workers Skill requirements Employment Learning span The Industrial Age Took years to accomplish Local, state, national Manufacturing Manual Laborer Strength, dexterity, stamina Lifetime with one employer Kindergarten-12th grade Months, weeks to accomplish Global Service, info, knowledge Designer, engineer, manager Scans (see Table II) Change jobs at least six times, careers three times Lifetime

11. The Demand for Labor is a Derived Demand  Employers hire workers to help them produce goods and services.  If the value of what they produce is greater than the wage they are being paid, employers will keep them. If not, they won’t.

12. The Principle of Exchange Employers will hire workers if they gain more from hiring them than they give up.

15. All other things being equal higher education leads to higher income

16. Dreams Deferred: Average Earnings and Education for Adults, 2002 Source: U.S. Census Bureau, Statistical Abstract of the United States: 2004 - 2005

17. If you want a good income, make yourself scarce.  Develop marketable skills through: more education more education more training more training  What skills are likely to be marketable?

18. Table II: SCANS 2000 SkillsDescriptions Basics Thinking Personal Interpersonal Systems Information Technology Resources Reading, writing, mathematics, listening, speaking Creative thinking, decision making, problem solving, knowing how to learn, reasoning Responsibility, self-esteem, sociability, self management, integrity Planning, organizing, monitoring, assessing, evaluating, adjusting Teamwork, teaching, serving clients/customers, leadership, negotiating, working with people of diverse cultural backgrounds Understand social, organizational and technological systems; monitor and correct systems Acquiring and evaluating, organizing and maintaining, interpreting and communicating, using computers to process information Selecting equipment and tools, applying technology to specific tasks, maintaining and troubleshooting technologies, learning new technologies

19. Basic Skills  reading  writing  mathematics  listening  speaking

20. Thinking Skills  creative thinking  decision-making  problem solving  visualizing  knowing how to learn  reasoning

21. Personal Qualities  responsibility  self--esteem  sociability  self-management  integrity

22. Resource Allocation  planning  organizing  monitoring  assessing  evaluating  adjusting

23. Interpersonal Skills  team skills  teaching  serving clients/customers  leadership  negotiating  working with people of diverse cultural backgrounds

24. Systems - Social, organizational, and technological  understanding  monitoring  correcting

25. Information  acquiring and evaluating  organizing and maintaining  interpreting and communicating  using computers to process

26. Technology  selecting  applying to specific tasks  maintaining and troubleshooting  keeping up to date  learning

27. To compete in a global economy, you will need these skills

28. The Mirror: An Incredibly Powerful Package of Human Capital!

29. You are the only one who can develop your human capital….. not your teachers, not your parents, YOU

30. The Labor Market (Assume a wage of $100 per day) WorkersTotal Product Marginal Product Price Marginal Revenue Product 3 4 5 6 7 8 18 30 40 48 54 58 12 $15 $180

31. The Labor Market (Assume a wage of $100 per day) WorkersTotal Product Marginal Product Price Marginal Revenue Product 3 4 5 6 7 8 18 30 40 48 54 58 12 10 8 6 4 $15 $180 $150 $120 $90 $60

32. The Marginal Principle in the Labor Market  A firm will hire workers up to the point where their wage is equal to their marginal revenue product W = MRP W = MRP  If they gain more than they give up, employers will hire workers.

33. The hiring decision and the constant search for substitutes  Hire you?  Hire a different worker?  Hire a machine?

34. Main Points  Relative wage is the measure of the relative scarcity of particular workers.  Relative wages are not a matter of fair or moral value.  The labor market of the 21 st century is characterized by rapid technological change, global competition, demand for highly skilled workers, numerous job and career changes, and constant upgrades of skills and knowledge.  The demand for labor is a derived demand.

35. Main Points  Education and training improve human capital and increase peoples’ expected income.  Relative wages are determined by supply and demand.  High wages are earned by workers with very scarce human capital --- high demand and low supply.  Low wages are earned by workers whose human capital is not so scarce --- high supply of workers with similar human capital.  Employers hire workers as long as they expect to gain more than they give --- as long as the expected marginal revenue product of the worker is greater than the wage.

36. MAKE YOURSELF SCARCE!!!!