Ch 26 wage determination
This presentation is the property of its rightful owner.
Sponsored Links
1 / 22

Ch 26. Wage Determination PowerPoint PPT Presentation


  • 268 Views
  • Uploaded on
  • Presentation posted in: General

Ch 26. Wage Determination. A.Wage rate B.Nominal wage C.Real wage. -- Wage rate: price paid per unit of labor services (one hour of work). * Labor earnings: multiply the wage rate by number of hours. -- Nominal wage: amount of money received per hour, day, or year.

Download Presentation

Ch 26. Wage Determination

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Ch 26 wage determination

Ch 26.Wage Determination


A wage rate b nominal wage c real wage

A.Wage rateB.Nominal wageC.Real wage

-- Wage rate: price paid per unit of labor services (one hour of work).

* Labor earnings: multiply the wage rate by number of hours.

-- Nominal wage: amount of money received per hour, day, or year.

-- Real wage: quantity of goods & services a worker can obtain with nominal wages; reveals the “purchasing power” of nominal wages.

Real wages – adjusted for inflation.

Nominal wages – not adjusted.


Labor wages and earnings

GLOBAL PERSPECTIVE

Labor Wages and Earnings

Hourly Wages of Production Workers

Selected Nations

Hourly Pay in U.S. Dollars, 2004

0 5 10 15 20 25 30 35

33.75

Denmark

Germany

Switzerland

Sweden

United Kingdom

France

United States

Australia

Japan

Canada

Italy

Korea

Taiwan

Mexico

32.53

30.26

28.42

24.71

23.89

23.17

23.09

21.90

21.42

20.48

11.52

5.97

2.50

Source: U.S. Bureau of Labor Statistics, 2006


The role of productivity

The Role of Productivity

The demand for labor is high in the U.S. and other advanced economies because labor is productive due to:

  • Plentiful capital

  • Many natural resources

  • Advanced technology

  • Labor quality

  • Culture

-- Real wages in the U.S. in the long run have increased at about the same rate as increases

in output per worker.

-- Increases in productivity result partly due to increased technology.


Ch 26 wage determination

Real Wages & Productivity

  • There’s a close long- run relationship in the U.S. between output per week and real hourly compensation (= wages & salaries + employers’ contributions to social insurance and private benefit plans).

  • Graph shows increases in labor supply & labor demand, resulting in a long-run, or secular, increase in wage rates and employment.


Real wages and productivity

Real Wages and Productivity

  • Secular Growth of Real Wages

  • Long Run Trend of Real Wages in the U.S.

S2020

S2000

S1950

S1900

Real Wage Rate (Dollars)

D2020

D2000

D1950

D1900

Quantity of Labor


Purely competitive labor market 1 mrp mrc rule

Purely Competitive Labor Market1.MRP = MRC Rule

Now we look

at specific

wage rates

(from ch. 25)

In this market:

  • Firms compete for hiring specific labor.

  • Qualified workers supply the labor.

  • Individual firms and individual workers are “wage takers” since neither can exert any control over the market wage rate.

Non-labor cost

(S = MRC)

Total wage cost


Purely competitive labor market

Purely Competitive Labor Market

  • Market Demand for Labor

  • Market Supply for Labor

  • Labor Market Equilibrium

  • MRP = MRC Rule

    Graphically…


Ch 26 wage determination

Labor supply and labor demand in a (a) purely competitive labor market and (b) a single competitive firm.

Labor Market

Individual Firm

  • PC labor market has many firms competing in hiring a specific type of labor.

  • Each (numerous) qualified worker w/ identical skills supplies type of labor.

  • Individual firms and workers are ‘wage takers’ since neither can exert any control over the market wage rate.

a

S

b

e

s=MRC

Wage Rate (Dollars)

Wage Rate (Dollars)

($10)

WC

($10)

WC

D=MRP

(∑ mrps)

d=mrp

c

0

0

qC

QC

(5)

(1000)

Quantity of Labor

Quantity of Labor


Ch 26 wage determination

To produce, or not to produce…

That is the question.


Monopsony 1 single buyer employer 2 firm is a wage maker

Monopsony1.Single buyer / employer2.Firm is a “wage maker”

MRC curve

is above the

S curve

because

a higher

wage is

needed to

attract new

workers &

for current

workers.

Possible

wage rate

could be

between

c and b.

In a Monopolistic Market:

-- Employer’s marginal

resource (labor) cost curve (MRC) lies above the labor supply curve S.

-- MRP=MRC at point b.

-- Monopolist hires Qb

workers (compared with Qc under competition).

-- Shown by point c on S, it pays only wage rate Wb (compared with the

competitive wage Wc).

MRC

b

a

c


Monopsony model

Monopsony Model

  • Monopsony

  • Upward-Sloping Labor Supply to Firm

  • MRC Higher Than the Wage Rate

  • Equilibrium Wage and Employment

    Graphically…


Monopsony model1

Monopsony Model

Monopsonistic Labor Market

MRC

S

b

a

Wage Rate (Dollars)

Wc

Wm

c

MRP

0

Qc

Qm

Quantity of Labor

Examples of Monopsony Power


Three union models

Three Union Models

  • Demand Enhancement Model

    • Increase Product Demand

    • Increase Productivity

    • Alter the Price of Other Inputs

S

Increase

In Demand

Wu

Wage Rate (Dollars)

Wc

D2

D1

Qu

Qc

Quantity of Labor


Three union models1

Three Union Models

  • Exclusive or Craft Union Model

    • Restricted Immigration

    • Reduced Child Labor

    • Encouraged Compulsory Retirement

    • Shorter Hour Workweek

    • Exclusive Unionism

    • Occupational Licensing

      Graphically…


Three union models2

Three Union Models

  • Exclusive or Craft Union Model

S2

S1

Wage Rate (Dollars)

Decrease

In Supply

Wu

Wc

D

Qu

Qc

Quantity of Labor


Three union models3

Three Union Models

  • Inclusive or Industrial Union Model

    • Inclusive Unionism

S

b

a

Wage Rate (Dollars)

Wu

e

Wc

D

Qu

Qe

Qc

Quantity of Labor


Overview of 4 market models

Overview of 4 Market Models


Minimum wage

Minimum Wage

  • Minimum wage legislation is less likely to have an adverse effect in monopsonistic markets.

  • Critics of min. wage laws argue that it reduces employment.

  • If min. wage is set too high, some labor markets can expect a surplus of labor.

  • Increases in the Federal min. wage during the 1990s saw smaller decreases in teenage employment than in previous min. wage hikes.

  • Unions support a higher min. wage because it makes less-skilled workers less substitutable for union workers.

  • Some supporters of the min. wage say it has a positive employment effect due to reduced turnover rates, higher efficiency, and therefore increased productivity.


Wage differentials

Wage Differentials

Education Levels and Individual Annual Earnings

Educational

Attainment

Professional Degree

Annual Earnings (Thousands of Dollars)

Bachelor’s Degree

Associate’s Degree

High School Diploma

Age


Wage differentials1

Annual Average Wages

Occupation

Wage Differentials

Average Annual Wages in Selected Occupations, 2005

Surgeons

Aircraft Pilots

Petroleum Engineers

Financial Managers

Law Professors

Chemical Engineers

Dental Hygienists

Registered Nurses

Police Officers

Electricians

Travel Agents

Barbers

Retail Salespersons

Recreation Workers

Teacher Aides

Fast Food Cooks

$177,690

135,040

97,350

96,620

95,570

79,230

60,620

56,880

47,270

45,630

37,750

24,700

23,170

22,420

21,100

15,500

Wage differentials

can arise from

both the demand

-side & supply-side

of labor markets.

Source: Bureau of Labor Statistics, 2006


Ch 26 wage determination

Annual work hours

(2004)


  • Login