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ECON 201 Macroeconomics

ECON 201 Macroeconomics. Chapter 26 Wage Determination- More of it. Efficiency Wages. In 1914 - Ford Motor Company made headlines by offering autoworkers $5 per day, up from $2.50 per day.

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ECON 201 Macroeconomics

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  1. ECON 201Macroeconomics Chapter 26 Wage Determination- More of it

  2. Efficiency Wages • In 1914 - Ford Motor Company made headlines by offering autoworkers $5 per day, up from $2.50 per day. • The wage was newsworthy because the typical market wage in manufacturing at that time was just $2 to $3 per day. • Thanks Henry - Why did he offer higher than competitive wage?

  3. Ford Motors Suffering from high rates of job quitting and absenteeism. Higher wage rate would increase worker productivity by increasing morale & reducing employment turn over. Only workers working more than 6 mo’s were eligible. 10,000 sought jobs

  4. Ford Motors – Efficiency Wage It worked! – Quitting and absenteeism rates plummeted. Labor productivity increased by 51% that year. Raised the Marginal Revenue Product (MRP) of Ford workers. Pay plan addressed the principal-agent problem by aligning the interests of workers & owners.

  5. Minimum Wage Controversy minimum wage legislation as an antipoverty device. Some for it, some against it

  6. Minimum Wage Does Min Wage cause unemployment?

  7. Monopsony Model • What is a Monopsony? • A market in which a single employer has substantial hiring power. • Examples: • Silver Mining company • Alaskan Fish Processor • New England textile mill • Firm’s hiring decisions have an impact on the wage.

  8. Monopsony Model wage determination in imperfect labor markets Monopsony Labor

  9. Unions • Group of workers who form an organization to gain: • Respect on the job • Better wages and benefits • More flexibility for work and family needs • A voice in improving the quality of their products & services.

  10. I don’t pay no Union Dues The U.S. Government gives workers the right to form or join a labor union of their choosing in order to improve their working conditions. In 2007, median weekly earnings for full-time union wage and salary workers were $863, compared with $663 for their nonunion counterparts.

  11. Demand Enhancement Union Model • Try to Increase wage rates by: • Increasing labor demand through actions that increase Product Demand (advertising and through political lobbying) • Raise labor Productivity • Alter prices of related inputs

  12. Craft Unions The earliest unions in the United States. represent employees in a single occupation or group of closely related occupations. members of craft unions are generally highly skilled workers. most common in occupations in which employees frequently switch employers.

  13. Craft Unions • Try to Increase wage rates by: • Artificially restricting labor supply through long apprenticeships or occupational licensing.

  14. Examples of craft unions various skilled trades in the construction industry, such as carpentry, plumbing, and electrical work. Employers contact the union's hiring hall and union members currently out of work are referred to the job.

  15. Industrial/Inclusive/Labor Union Model Most unionized workers in the United States belong to industrial unions. represents workers across a wide range of occupations within one or more industries. all workers in the same industry are organized into the same union—regardless of skill or trade

  16. Industrial Union slogans "an injury to one is an injury to all" "the longer the picket line, the shorter the strike."

  17. Industrial Unions Although most began by organizing workers in a single industry or group of related industries, most have diversified over the past 30 to 40 years. For example, the UAW (United Automobile workers) also represents workers in the tractor and earthmoving equipment industry (e.g., Caterpillar and John Deere) and in the aerospace industry (e.g., Boeing), and in the late 1990s added groups like the Graphics Artists Guild (3,000 members), the National Writers Union (5,000 members), and various service, technical, and graduate student employees at more than 20 colleges and universities across the country.

  18. Industrial/Inclusive Union Model • Try to Increase wage rates by: • Gaining control over the firm’s labor supply and threatening to strike unless a negotiated wage is obtained.

  19. Examples of Industrial Union United Automobile Workers (UAW). - It represents skilled craft workers, assembly-line workers, and unskilled workers in all of the major American automobile companies. UAW negotiates separate contracts for workers in each of these companies.

  20. Bilateral Monopoly In a bilateral monopoly there is both a monopoly (a single seller) and monopsony (a single buyer) in the same market. price and output will be determined by the non economic forces like bargaining power of both buyer and seller.

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