28Labor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity           CHAPTERPurely Competitive Labor Ma...
LABOR, WAGES, AND EARNINGSLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity                     ...
GLOBAL PERSPECTIVELabor, Wages, and Earnings             Hourly Wages of Production Workers,General Level of WagesReal Wag...
GENERAL LEVEL OF WAGES                           Role of ProductivityLabor, Wages, and EarningsGeneral Level of WagesReal ...
REAL WAGES ANDLabor, Wages, and EarningsGeneral Level of Wages                               PRODUCTIVITYReal Wages and Pr...
PURELY COMPETITIVE                             LABOR MARKETLabor, Wages, and EarningsGeneral Level of WagesReal Wages and ...
LABOR SUPPLY AND DEMANDLabor, Wages, and Earnings     PURELY COMPETITIVE MARKETGeneral Level of WagesReal Wages and Produc...
LABOR SUPPLY AND DEMANDLabor, Wages, and Earnings     PURELY COMPETITIVE MARKETGeneral Level of WagesReal Wages and Produc...
Labor, Wages, and Earnings                           MONOPSONY MODEL                         • Single Buyer of a type ofGe...
MONOPSONISTICLabor, Wages, and Earnings                                               LABOR MARKETGeneral Level of WagesRe...
MONOPSONISTICLabor, Wages, and Earnings                                                    LABOR MARKETGeneral Level of Wa...
MONOPSONISTICLabor, Wages, and Earnings                                                    LABOR MARKETGeneral Level of Wa...
MONOPSONISTICLabor, Wages, and Earnings                                                  LABOR MARKETGeneral Level of Wage...
THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages                               Demand-Enhancement ModelR...
THREE UNION MODELSLabor, Wages, and Earnings                               Demand-Enhancement Model ...by increasingGenera...
THREE UNION MODELSLabor, Wages, and Earnings                               Demand-Enhancement Model ...by increasingGenera...
THREE UNION MODELSLabor, Wages, and Earnings                               Demand-Enhancement Model ...by increasingGenera...
THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages                               Exclusive or Craft ModelR...
THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages                               Exclusive or Craft Model ...
THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages                               Exclusive or Craft Model ...
THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages                               Exclusive or Craft Model ...
THREE UNION MODELSLabor, Wages, and Earnings                               Inclusive or Industrial ModelGeneral Level of W...
THREE UNION MODELSLabor, Wages, and Earnings                               Inclusive or Industrial ModelGeneral Level of W...
WAGE INCREASESLabor, Wages, and Earnings                           AND UNEMPLOYMENT                         • Union member...
BILATERAL MONOPOLY MODELLabor, Wages, and Earnings                                                Monopsonist & Union Seek...
BILATERAL MONOPOLY MODELLabor, Wages, and Earnings                                                Monopsonist & Union Seek...
MINIMUM WAGELabor, Wages, and EarningsGeneral Level of Wages                                  CONTROVERSYReal Wages and Pr...
WAGE DIFFERENTIALSLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity                           Ma...
WAGE DIFFERENTIALS                         Compensating DifferencesLabor, Wages, and EarningsGeneral Level of WagesReal Wa...
PAY FOR PERFORMANCELabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity                           T...
PAY FOR PERFORMANCE                         Negative Side-Effects of PayLabor, Wages, and EarningsGeneral Level of WagesRe...
PAY FOR PERFORMANCE                         Negative Side-Effects of PayLabor, Wages, and EarningsGeneral Level of WagesRe...
nominal wage              bilateral monopolyreal wage                 minimum wagepurely competitive labor market differen...
Next:Labor, Wages, and EarningsGeneral Level of WagesReal Wages and ProductivityPurely Competitive Labor MarketMonopsony M...
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Wage determination

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Transcript of "Wage determination"

  1. 1. 28Labor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity CHAPTERPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage Differentials HELPPay For PerformanceKey Terms WANTED WagePrevious Slide Next Slide Determination End Show 28 - 1 Copyright McGraw-Hill/Irwin, 2002
  2. 2. LABOR, WAGES, AND EARNINGSLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity Wages Defined...Purely Competitive Labor MarketMonopsony ModelThree Union Models Wages - - Salary - - EarningsBilateral Monopoly Model Nominal WagesMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Real WagesPrevious Next Slide Slide International differences... End Show 28 - 2 Copyright McGraw-Hill/Irwin, 2002
  3. 3. GLOBAL PERSPECTIVELabor, Wages, and Earnings Hourly Wages of Production Workers,General Level of WagesReal Wages and Productivity Selected NationsPurely Competitive Labor Market Hourly Pay in U.S. Dollars, 1999Monopsony Model 0 4 8 12 16 20 24 28 32Three Union Models GermanyBilateral Monopoly Model SwitzerlandMinimum Wage Controversy DenmarkWage Differentials SwedenPay For Performance JapanKey Terms United States France Italy United Kingdom AustraliaPrevious Next Canada Slide Slide Korea End Taiwan Show Portugal 28 - 3 Source: U.S. Bureau of Labor Statistics Copyright McGraw-Hill/Irwin, 2002
  4. 4. GENERAL LEVEL OF WAGES Role of ProductivityLabor, Wages, and EarningsGeneral Level of WagesReal Wages and ProductivityMonopsony ModelThree Union Models • Plentiful CapitalPurely Competitive Labor MarketBilateral Monopoly ModelMinimum Wage ControversyWage Differentials • Abundant Natural ResourcesPay For PerformanceKey Terms • Advanced TechnologyPrevious Slide Next Slide • Labor Quality End Show 28 - 4 • Intangible Factors Copyright McGraw-Hill/Irwin, 2002
  5. 5. REAL WAGES ANDLabor, Wages, and EarningsGeneral Level of Wages PRODUCTIVITYReal Wages and Productivity Growth in real income (earnings)Purely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral Monopoly Model Growth in output per worker-hourMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Can only grow at about the same rate!Previous Next Slide Slide End Show Secular Growth of Real Wages 28 - 5 Copyright McGraw-Hill/Irwin, 2002
  6. 6. PURELY COMPETITIVE LABOR MARKETLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity Purely competitive labor market:Purely Competitive Labor MarketMonopsony Model Many FirmsThree Union ModelsBilateral Monopoly ModelMinimum Wage Controversy Numerous Qualified WorkersWage DifferentialsPay For PerformanceKey Terms “Wage Taker” BehaviorPrevious Next Market Demand for Labor Slide Slide End Show Market Supply of Labor 28 - 6 Copyright McGraw-Hill/Irwin, 2002
  7. 7. LABOR SUPPLY AND DEMANDLabor, Wages, and Earnings PURELY COMPETITIVE MARKETGeneral Level of WagesReal Wages and Productivity SPurely Competitive Labor Market IncludesMonopsony ModelThree Union Models Normal Wage Rate (dollars)Bilateral Monopoly Model ProfitMinimum Wage Controversy Non-Wage Differentials LaborPay For Performance Costs S = MRCKey Terms Wc $10 Wc ($10) Labor D = MRP (Σ mrp’s) Costs d = mrpPrevious Next (1000) (5) Slide Slide End Quantity of Labor Quantity of Labor Show 28 - 7 Labor Market Individual Firm Copyright McGraw-Hill/Irwin, 2002
  8. 8. LABOR SUPPLY AND DEMANDLabor, Wages, and Earnings PURELY COMPETITIVE MARKETGeneral Level of WagesReal Wages and Productivity SPurely Competitive Labor Market IncludesMonopsony ModelThree Union Models Marginal ResourceNormal Wage Rate (dollars)Bilateral Monopoly ModelMinimum Wage Controversy Cost (MRC) will beProfit Non-Wage Differentials constant and equal to Labor Costs S = MRC resource pricePay For PerformanceKey Terms Wc $10 W c ($10) (the wage rate) Labor D = MRP (Σ mrp’s) Costs d = mrpPrevious Next (1000) (5) Slide Slide End Quantity of Labor Quantity of Labor Show 28 - 8 Labor Market Individual Firm Copyright McGraw-Hill/Irwin, 2002
  9. 9. Labor, Wages, and Earnings MONOPSONY MODEL • Single Buyer of a type ofGeneral Level of WagesReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral Monopoly Model laborMinimum Wage ControversyWage Differentials • The type of labor is relatively immobilePay For PerformanceKey Terms “Wage Maker” BehaviorPrevious Slide Next Slide Upward-Sloping Supply End Show Curve to Firm 28 - 9 Copyright McGraw-Hill/Irwin, 2002
  10. 10. MONOPSONISTICLabor, Wages, and Earnings LABOR MARKETGeneral Level of WagesReal Wages and Productivity SPurely Competitive Labor MarketMonopsony ModelThree Union Models Wage Rate (dollars)Bilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms In monopsony MRC lies above the supply curvePrevious Next Slide Slide End Show Quantity of Labor 28 - 10 Copyright McGraw-Hill/Irwin, 2002
  11. 11. MONOPSONISTICLabor, Wages, and Earnings LABOR MARKETGeneral Level of Wages MRCReal Wages and Productivity SPurely Competitive Labor MarketMonopsony ModelThree Union Models Wage Rate (dollars) MRP = MRCBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Wm MRP Qm units ofPrevious Next labor hired Slide Slide End Qm Show Quantity of Labor 28 - 11 Copyright McGraw-Hill/Irwin, 2002
  12. 12. MONOPSONISTICLabor, Wages, and Earnings LABOR MARKETGeneral Level of Wages MRCReal Wages and Productivity SPurely Competitive Labor MarketMonopsony ModelThree Union Models The competitive Wage Rate (dollars) solution wouldBilateral Monopoly ModelMinimum Wage ControversyWage Differentials result in a higherPay For PerformanceKey Terms Wc wage and greater Wm employment MRPPrevious Next Slide Slide End Qm Qc Show Quantity of Labor 28 - 12 Copyright McGraw-Hill/Irwin, 2002
  13. 13. MONOPSONISTICLabor, Wages, and Earnings LABOR MARKETGeneral Level of Wages MRCReal Wages and Productivity SPurely Competitive Labor MarketMonopsony ModelThree Union Models Monopsonists maximizeThe competitive Wage Rate (dollars) profits by hiring a smaller would solutionBilateral Monopoly ModelMinimum Wage ControversyWage Differentials result in a higherPay For Performance number of workerswage and greater andKey Terms Wc thereby paying a less-than- Wm employment competitive wage rate.MRPPrevious Next Slide Slide End Qm Qc Show Quantity of Labor 28 - 13 Copyright McGraw-Hill/Irwin, 2002
  14. 14. THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages Demand-Enhancement ModelReal Wages and ProductivityPurely Competitive Labor Market SMonopsony Model Wage Rate (dollars)Three Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Wc D1Previous Next Slide Slide Qc End Show 28 - 14 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  15. 15. THREE UNION MODELSLabor, Wages, and Earnings Demand-Enhancement Model ...by increasingGeneral Level of Wages product demandReal Wages and ProductivityPurely Competitive Labor Market SMonopsony Model Wage Rate (dollars)Three Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Wu Wc D2 D1Previous Next Slide Slide Qc Qu End Show 28 - 15 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  16. 16. THREE UNION MODELSLabor, Wages, and Earnings Demand-Enhancement Model ...by increasingGeneral Level of Wages product demandReal Wages and ProductivityPurely Competitive Labor Market S ...by increasing productivityMonopsony Model Wage Rate (dollars)Three Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Wu Wc D2 D1Previous Next Slide Slide Qc Qu End Show 28 - 16 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  17. 17. THREE UNION MODELSLabor, Wages, and Earnings Demand-Enhancement Model ...by increasingGeneral Level of Wages product demandReal Wages and ProductivityPurely Competitive Labor Market S ...by increasing productivityMonopsony Model Wage Rate (dollars)Three Union Models ...by increasingBilateral Monopoly ModelMinimum Wage Controversy the price ofWage Differentials substitutesPay For PerformanceKey Terms Wu Wc D2 D1Previous Next Slide Slide Qc Qu End Show 28 - 17 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  18. 18. THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages Exclusive or Craft ModelReal Wages and ProductivityPurely Competitive Labor Market Wage Rate (dollars) S1Monopsony ModelThree Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Wc DPrevious Next Slide Slide Qc End Show 28 - 18 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  19. 19. THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages Exclusive or Craft Model ...restrictiveReal Wages and Productivity S2 membershipPurely Competitive Labor Market Wage Rate (dollars) S1 policiesMonopsony ModelThree Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms Wu Wc DPrevious Next Slide Slide Qu Qc End Show 28 - 19 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  20. 20. THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages Exclusive or Craft Model ...restrictiveReal Wages and Productivity S2 membershipPurely Competitive Labor Market S1 policies ...restrictingMonopsony Model Wage Rate (dollars)Three Union ModelsBilateral Monopoly Model labor supply ofMinimum Wage Controversy the economy asWage Differentials a wholePay For PerformanceKey Terms Wu Wc DPrevious Next Slide Slide Qu Qc End Show 28 - 20 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  21. 21. THREE UNION MODELSLabor, Wages, and EarningsGeneral Level of Wages Exclusive or Craft Model ...restrictiveReal Wages and Productivity S2 membershipPurely Competitive Labor Market S1 policies ...restrictingMonopsony Model Wage Rate (dollars)Three Union ModelsBilateral Monopoly Model labor supply ofMinimum Wage Controversy the economy asWage Differentials a wholePay For PerformanceKey Terms Wu …occupational licensing Wc DPrevious Next Slide Slide Qu Qc End Show 28 - 21 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  22. 22. THREE UNION MODELSLabor, Wages, and Earnings Inclusive or Industrial ModelGeneral Level of Wages ...by organizingReal Wages and ProductivityPurely Competitive Labor Market S virtually all workers andMonopsony Model Wage Rate (dollars)Three Union Models thereby controlBilateral Monopoly ModelMinimum Wage Controversy of the supplyWage Differentials curve for laborPay For Performance causing…Key Terms Wc DPrevious Next Slide Slide Qc End Show 28 - 22 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  23. 23. THREE UNION MODELSLabor, Wages, and Earnings Inclusive or Industrial ModelGeneral Level of Wages ...by organizingReal Wages and ProductivityPurely Competitive Labor Market S virtually all workers andMonopsony Model Wage Rate (dollars)Three Union Models thereby controlBilateral Monopoly ModelMinimum Wage Controversy of the supplyWage Differentials curve for laborPay For Performance Wu causing…Key Terms Wc DPrevious Next Slide Slide Qu Qc End Show 28 - 23 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  24. 24. WAGE INCREASESLabor, Wages, and Earnings AND UNEMPLOYMENT • Union members receiveGeneral Level of WagesReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union Models about 15% higher wagesBilateral Monopoly ModelMinimum Wage Controversy • Negative impact on level of employmentWage DifferentialsPay For PerformanceKey Terms Negative unemployment effect reduced by:Previous Slide Next Slide Growth End Show Elasticity 28 - 24 Copyright McGraw-Hill/Irwin, 2002
  25. 25. BILATERAL MONOPOLY MODELLabor, Wages, and Earnings Monopsonist & Union SeekGeneral Level of Wages Different Wage Rates...Real Wages and ProductivityPurely Competitive Labor Market SMonopsony Model Wage Rate (dollars)Three Union Models …economicBilateral Monopoly Model theoryMinimum Wage ControversyWage Differentials cannotPay For PerformanceKey Terms Wu determine the actual Wc outcome. Wm DPrevious Next Slide Slide Qu=Qm Qc End Show 28 - 25 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  26. 26. BILATERAL MONOPOLY MODELLabor, Wages, and Earnings Monopsonist & Union SeekGeneral Level of Wages Different Wage Rates...Real Wages and ProductivityPurely Competitive Labor Market SMonopsony Model Wage Rate (dollars)Three Union Models …economicBilateral Monopoly Model theoryMinimum Wage ControversyWage Differentials cannotPay For PerformanceKey Terms Wu determine the actual Wc outcome. Wm DPrevious Slide Next Slide Desirability of Bilateral Monopoly Qu=Qm Qc End Show 28 - 26 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
  27. 27. MINIMUM WAGELabor, Wages, and EarningsGeneral Level of Wages CONTROVERSYReal Wages and Productivity •Case Against Minimum WagePurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms •Case For Minimum Wage •Evidence and ConclusionsPrevious Next Slide Slide End Show 28 - 27 Copyright McGraw-Hill/Irwin, 2002
  28. 28. WAGE DIFFERENTIALSLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity Marginal RevenuePurely Competitive Labor MarketMonopsony ModelThree Union Models Productivity Noncompeting GroupsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For PerformanceKey Terms • Ability • Education and TrainingPrevious Next • Investment in Human Capital Slide Slide End Show 28 - 28 Copyright McGraw-Hill/Irwin, 2002
  29. 29. WAGE DIFFERENTIALS Compensating DifferencesLabor, Wages, and EarningsGeneral Level of WagesReal Wages and ProductivityPurely Competitive Labor MarketMonopsony Model • Nonmonetary DifferencesThree Union ModelsBilateral Monopoly ModelMinimum Wage Controversy Market ImperfectionsWage DifferentialsPay For Performance • Lack of Job Information • Geographical ImmobilityKey Terms • Unions & GovernmentPrevious Slide Next Slide Restraints End Show • Discrimination 28 - 29 Copyright McGraw-Hill/Irwin, 2002
  30. 30. PAY FOR PERFORMANCELabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity The Principal-Agent ProblemPurely Competitive Labor MarketMonopsony ModelThree Union Models Incentive Pay PlanBilateral Monopoly ModelMinimum Wage ControversyWage Differentials • Piece Rates • Commissions or RoyaltiesPay For PerformanceKey Terms • Bonuses, Stock Options, &Previous Next Slide Profit Sharing Slide End Show • Efficiency Wages 28 - 30 Copyright McGraw-Hill/Irwin, 2002
  31. 31. PAY FOR PERFORMANCE Negative Side-Effects of PayLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity for PerformancePurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral Monopoly Model • Poor Product QualityMinimum Wage ControversyWage Differentials • Questionable or Fraudulent Sales PracticesPay For PerformanceKey Terms • Disruption of Teamwork • Free Ride by Low ProducersPrevious Slide Next Slide • Low Turnover Decreases End Show Hiring Opportunities 28 - 31 Copyright McGraw-Hill/Irwin, 2002
  32. 32. PAY FOR PERFORMANCE Negative Side-Effects of PayLabor, Wages, and EarningsGeneral Level of WagesReal Wages and Productivity for PerformancePurely Competitive Labor MarketMonopsony Model • Poor Product Quality ChapterThree Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage Differentials • Questionable or Fraudulent Sales Practices ConclusionsPay For PerformanceKey Terms • Disruption of Teamwork • Free Ride by Low ProducersPrevious Slide Next Slide • Low Turnover Decreases End Show Hiring Opportunities 28 - 32 Copyright McGraw-Hill/Irwin, 2002
  33. 33. nominal wage bilateral monopolyreal wage minimum wagepurely competitive labor market differentials wagemonopsony marginal revenue productivityexclusive unionism noncompeting groupsoccupational licensing investment in human capitalinclusive unionism compensating differences incentive pay plan Copyright McGraw-Hill/Irwin 2002 BACK END
  34. 34. Next:Labor, Wages, and EarningsGeneral Level of WagesReal Wages and ProductivityPurely Competitive Labor MarketMonopsony ModelThree Union ModelsBilateral Monopoly ModelMinimum Wage ControversyWage DifferentialsPay For Performance Rent, Interest, and ProfitsKey Terms Chapter 29Previous Next Slide Slide End Show 28 - 34 Copyright McGraw-Hill/Irwin, 2002
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