html5-img
1 / 17

Chapter 26-Wage Determination

Chapter 26-Wage Determination. Presentation 1. Labor. Broadly defined as: 1. Blue and white collar workers 2. Professionals- doctors, lawyers 3. Owners of small businesses. Wages.

kaloni
Download Presentation

Chapter 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. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 26-Wage Determination Presentation 1

  2. Labor • Broadly defined as: • 1. Blue and white collar workers • 2. Professionals- doctors, lawyers • 3. Owners of small businesses

  3. Wages • Hourly pay, annual salaries, bonuses, commissions, royalties, and fringe benefits (vacations, health insurance, pensions) • Wage Rate- Price paid per hour of service

  4. Nominal v Real Wage • Nominal Wage- the amount of money received per hour, day, or year • Real Wage- the quantity of goods and services a worker can obtain with nominal wages---the “purchasing power” of nominal wages

  5. Real Wages Cont’d • Real wages depend on your nominal wage and the price of goods/services you purchase • Ex- you receive a 5% raise in nominal wages but the price of goods goes up 3% • *** your real wages increase by 2%

  6. 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

  7. Reasons for High Productivity • 1. large amounts of physical capital • 2. access to abundant natural resources • 3. advanced technology • 4. labor quality-better health, education and training • 5. other factors such as work environment and flexible management

  8. Real Wages and Productivity • Over long periods of time, productivity and real wages tend to rise together

  9. Purely Competitive Labor Market • 1. numerous firms compete with one another in hiring a specific type of labor • 2. many workers with identical skills supplying the same type of labor • 3. individual firms and workers are “wage takers”

  10. Market Demand for Labor • To find the total or market demand curve for a particular labor service, sum horizontally the labor demand curves (the marginal revenue product curves) of the individual firms Labor Market S ($10) WC D=MRP (∑ mrps) 0 QC (1000) Quantity of Labor

  11. Market Supply of Labor • The supply curve slopes upward, indicating the employers as a group must pay higher wage rates to obtain more workers • The higher wages are used to attract workers away from other industries and locales

  12. Labor Market Equilibrium • The intersection of the market labor demand curve and the market supply curve determines the equilibrium wage rate and level of employment S ($10) WC D=MRP (∑ mrps) 0 QC (1000) Quantity of Labor

  13. Individual Firm • The individual firm in a perfectly competitive firm maximizes profit by hiring workers to the point where Wage rate = MRP s=MRC Wage Rate (Dollars) ($10) WC d=mrp c 0 qC (5) Quantity of Labor

  14. Monopsony A single employer of labor has substantial buying (hiring power) with the following characteristics: • Only a single buyer of a particular good 2. Labor is immobile (workers would have to move or acquire new skills) 3. The firm is a wage maker **monopsony power can vary

  15. W 14.1 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

  16. Examples of Monopsonies • Some markets such as: • nurses: one hospital • professional athletes: drafts • public school teachers: only one school

  17. MRC Higher than Wage Rate • When a monopsonist pays a higher wage to attract new workers, it must pay more to current workers as well • Ex- one worker can be hired @ $6 and a second worker can be hired for $7 • Therefore the Marginal Resource Cost of the second worker is $8…the $7 plus the $1 raise to worker #1

More Related