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Employment and Wages. What Determines Wages? Reference 8.1. Key Questions to Answer. Why do some people earn higher wages than others? Who or what determines the amount people earn at various jobs? Why do wage rates differ?. The Laws of Supply and Demand hold for Labor, too.

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Employment and wages

Employment and Wages

What Determines Wages?

Reference 8.1

Key questions to answer
Key Questions to Answer

  • Why do some people earn higher wages than others?

  • Who or what determines the amount people earn at various jobs?

  • Why do wage rates differ?

The laws of supply and demand hold for labor too
The Laws of Supply and Demand hold for Labor, too.

  • Demand Curve for Labor: How many workers employers will demand at each price

  • Supply Curve for Labor: How many workers will supply their labor at each price.

  • Equilibrium Price = Wage Rate

Complete the worksheet demand supply and wage rate
Complete the worksheet: Demand, Supply and Wage Rate

  • Employers will demand…

  • Workers will supply…

  • What will the wage rate be in each instance?

Surplus and shortage
Surplus and Shortage

  • Surplus of Labor = Quantity of Labor supplied is greater than Quantity Demanded

    • Surplus of Labor -- Wage Rate Falls

  • Shortage of Labor = Quantity of labor supplied is less than quantity demanded

    • Shortage of Labor – Wage Rate Falls

  • Why do wage rates differ
    Why do wage rates differ?

    • Make a list of reasons why people may make different amounts of money in their employment…..

    Why do wage rates differ1
    Why do wage rates differ?

    • Special Skill

      • Innate Ability

      • Additional training

    • Demand for Good (derived demand for labor)

    • Gender

    • Location

    • Productivity

    • Few others are willing and able to do the work

    • We can conclude that wage rates may differ because the demand for different types of labor is not the same OR because the supply of different kinds of labor is not the same

    P 211 are tv movie and sports stars worth the many millions they earn
    p.211 Are TV, Movie, and Sports Stars Worth the Many Millions they Earn?

    • Michael Jordan made 100x the salary of the lowest paid player on the team. Why do you think there is such a large difference between what the star makes and those who work with the star?

    You have just been offered 3 jobs
    You have just been offered 3 jobs

    • In your hometown, $30,000

    • 2,000 miles away in Lansing, Michigan $50,000

    • In the most beautiful place in the nation, $25,000.

    • Which job would you take? Why?

    Job Benefits =

    Monetary Benefits (wages or income) + Nonmonetary Benefits

    Discuss with your partner: What are examples of nonmonetary benefits? Which would be the most important to you? How much money would you be willing to give up for this benefit?

    Nonmonetary benefits at google
    Nonmonetary Benefits at Google

    • Food

    • Hungry? Check out our free lunch and dinner – our gourmet chefs create a wide variety of healthy and delicious meals every day. Got the munchies? Google also offers snacks to help satisfy you in between meals.

    • On-site Doctor

    • At Google headquarters in Mountain View, California you have the convenience of seeing a doctor on-site. Physical therapy and chiropractic services are also available.

    • Shuttle Service

    • Google is pleased to provide its Mountain View employees with free shuttles to several San Francisco, East Bay and South Bay locations.

    • Financial Planning Classes

    • Google provides objective and conflict-free financial education classes. The courses are comprehensive and cover a variety of financial topics.

    • Other On-Site Services

    • At Google headquarters in Mountain View, you'll find on-site oil change and car wash services, dry cleaning, massage therapy, gym, hair stylist, fitness classes and bike repair.

    • Other Great Benefits

    • Halloween & holiday party, health fair, credit union, roller hockey, outdoor volleyball court, discounts for products and local attractions.

    Money wage vs real wage
    Money Wage vs. Real Wage

    • Measuring wage rate by the amount of money earned tells us money wage

    • Measuring wage rate by what the money will buy isreal wage

    • Real Wage is determined by dividing money wage by the Consumer Price Index (CPI)

    Cpi consumer price index
    CPI-Consumer Price Index

    • Issued by the Bureau of Labor Statistics, measurements of the changes in prices and wages are used to determine inflation or deflation.

    • A sample of goods that cost $100.00 in 1982-1984 would cost about $218.00 today.

    The CPI market basket

    The CPI market basket represents all the consumer goods and services purchased by urban households. Price data are collected for over 180 categories, which BLS has grouped into 8 major groups. These major groups, with examples of categories in each, are as follows:

    • Food and beverages (ham, eggs, carbonated drinks, coffee, meals and snacks);

    • Housing (rent of primary residence, fuel oil, bedroom furniture);

    • Apparel (men’s shirts and sweaters, women’s dresses, jewelry);

    • Transportation (new vehicles, gasoline, tires, airline fares);

    • Medical care (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services);

    • Recreation (television sets, cable TV, pets and pet products, sports equipment, admissions);

    • Education and communication (college tuition, postage, telephone services, computer software and accessories);

    • Other goods and services (tobacco and smoking products, haircuts and other personal care services, funeral expenses).

    Minimum wage law
    Minimum Wage Law

    • 1938 Fair Labor Standards Act

      • Originally 25 cents/hr., raised to 40 cents

    • 2001 federal min. wage $5.15

      • Equal to 46 cents in 1938

  • California minimum wage law today-$8.00

  • Review

    • In a competitive labor market, suppose the quantity demanded of labor is greater than the quantity supplied. What will happen to the wage rate?

    • It will rise. A shortage of labor will increase the “price” of labor.


    • John earns $7/hr. Kim earns $23/hr.

      In general, why does Kim earn more than John?

      Supply and demand conditions are different in Kim’s market than John’s market.

      • There may be a greater supply of workers in John’s market.

      • There may be greater demand for workers in Kim’s market


    • Over the past three years Ruth’s money wages have increased ten percent., and prices have increased 13 percent. What has happened to Ruth’s real wages?


    • Find an article in a newspaper, periodical or internet news site that relates to people earning different incomes. Write a one paragraph explanation in economic terms for the differences in salary. Attach a copy of the article to your paragraph.

    • Read Chapter 8.3 “Measuring Unemployment”

      Complete Section Review #1-5