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Wage determination
- 1. 28 Labor, Wages, andEarnings General Level of Wages Real Wages and Productivity CHAPTER Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials HELP Pay For Performance Key Terms WANTED Wage Previous Slide Next Slide Determination End Show 28 - 1 Copyright McGraw-Hill/Irwin, 2002
- 2. LABOR, WAGES, ANDEARNINGS Labor, Wages, and Earnings General Level of Wages Real Wages and Productivity Wages Defined... Purely Competitive Labor Market Monopsony Model Three Union Models Wages - - Salary - - Earnings Bilateral Monopoly Model Nominal Wages Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Real Wages Previous Next Slide Slide International differences... End Show 28 - 2 Copyright McGraw-Hill/Irwin, 2002
- 3. GLOBAL PERSPECTIVE Labor, Wages,and Earnings Hourly Wages of Production Workers, General Level of Wages Real Wages and Productivity Selected Nations Purely Competitive Labor Market Hourly Pay in U.S. Dollars, 1999 Monopsony Model 0 4 8 12 16 20 24 28 32 Three Union Models Germany Bilateral Monopoly Model Switzerland Minimum Wage Controversy Denmark Wage Differentials Sweden Pay For Performance Japan Key Terms United States France Italy United Kingdom Australia Previous Next Canada Slide Slide Korea End Taiwan Show Portugal 28 - 3 Source: U.S. Bureau of Labor Statistics Copyright McGraw-Hill/Irwin, 2002
- 4. GENERAL LEVEL OFWAGES Role of Productivity Labor, Wages, and Earnings General Level of Wages Real Wages and Productivity Monopsony Model Three Union Models • Plentiful Capital Purely Competitive Labor Market Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials • Abundant Natural Resources Pay For Performance Key Terms • Advanced Technology Previous Slide Next Slide • Labor Quality End Show 28 - 4 • Intangible Factors Copyright McGraw-Hill/Irwin, 2002
- 5. REAL WAGES AND Labor,Wages, and Earnings General Level of Wages PRODUCTIVITY Real Wages and Productivity Growth in real income (earnings) Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Model Growth in output per worker-hour Minimum Wage Controversy Wage Differentials Pay For Performance Key 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. PURELY COMPETITIVE LABOR MARKET Labor, Wages, and Earnings General Level of Wages Real Wages and Productivity Purely competitive labor market: Purely Competitive Labor Market Monopsony Model Many Firms Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Numerous Qualified Workers Wage Differentials Pay For Performance Key Terms “Wage Taker” Behavior Previous Next Market Demand for Labor Slide Slide End Show Market Supply of Labor 28 - 6 Copyright McGraw-Hill/Irwin, 2002
- 7. LABOR SUPPLY ANDDEMAND Labor, Wages, and Earnings PURELY COMPETITIVE MARKET General Level of Wages Real Wages and Productivity S Purely Competitive Labor Market Includes Monopsony Model Three Union Models Normal Wage Rate (dollars) Bilateral Monopoly Model Profit Minimum Wage Controversy Non- Wage Differentials Labor Pay For Performance Costs S = MRC Key Terms Wc $10 Wc ($10) Labor D = MRP (Σ mrp’s) Costs d = mrp Previous 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. LABOR SUPPLY ANDDEMAND Labor, Wages, and Earnings PURELY COMPETITIVE MARKET General Level of Wages Real Wages and Productivity S Purely Competitive Labor Market Includes Monopsony Model Three Union Models Marginal ResourceNormal Wage Rate (dollars) Bilateral Monopoly Model Minimum Wage Controversy Cost (MRC) will beProfit Non- Wage Differentials constant and equal to Labor Costs S = MRC resource price Pay For Performance Key Terms Wc $10 W c ($10) (the wage rate) Labor D = MRP (Σ mrp’s) Costs d = mrp Previous 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. Labor, Wages, andEarnings MONOPSONY MODEL • Single Buyer of a type of General Level of Wages Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Model labor Minimum Wage Controversy Wage Differentials • The type of labor is relatively immobile Pay For Performance Key Terms “Wage Maker” Behavior Previous Slide Next Slide Upward-Sloping Supply End Show Curve to Firm 28 - 9 Copyright McGraw-Hill/Irwin, 2002
- 10. MONOPSONISTIC Labor, Wages, andEarnings LABOR MARKET General Level of Wages Real Wages and Productivity S Purely Competitive Labor Market Monopsony Model Three Union Models Wage Rate (dollars) Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms In monopsony MRC lies above the supply curve Previous Next Slide Slide End Show Quantity of Labor 28 - 10 Copyright McGraw-Hill/Irwin, 2002
- 11. MONOPSONISTIC Labor, Wages, andEarnings LABOR MARKET General Level of Wages MRC Real Wages and Productivity S Purely Competitive Labor Market Monopsony Model Three Union Models Wage Rate (dollars) MRP = MRC Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Wm MRP Qm units of Previous Next labor hired Slide Slide End Qm Show Quantity of Labor 28 - 11 Copyright McGraw-Hill/Irwin, 2002
- 12. MONOPSONISTIC Labor, Wages, andEarnings LABOR MARKET General Level of Wages MRC Real Wages and Productivity S Purely Competitive Labor Market Monopsony Model Three Union Models The competitive Wage Rate (dollars) solution would Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials result in a higher Pay For Performance Key Terms Wc wage and greater Wm employment MRP Previous Next Slide Slide End Qm Qc Show Quantity of Labor 28 - 12 Copyright McGraw-Hill/Irwin, 2002
- 13. MONOPSONISTIC Labor, Wages, andEarnings LABOR MARKET General Level of Wages MRC Real Wages and Productivity S Purely Competitive Labor Market Monopsony Model Three Union Models Monopsonists maximizeThe competitive Wage Rate (dollars) profits by hiring a smaller would solution Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials result in a higher Pay For Performance number of workerswage and greater and Key Terms Wc thereby paying a less-than- Wm employment competitive wage rate.MRP Previous Next Slide Slide End Qm Qc Show Quantity of Labor 28 - 13 Copyright McGraw-Hill/Irwin, 2002
- 14. THREE UNION MODELS Labor,Wages, and Earnings General Level of Wages Demand-Enhancement Model Real Wages and Productivity Purely Competitive Labor Market S Monopsony Model Wage Rate (dollars) Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Wc D1 Previous Next Slide Slide Qc End Show 28 - 14 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 15. THREE UNION MODELS Labor,Wages, and Earnings Demand-Enhancement Model ...by increasing General Level of Wages product demand Real Wages and Productivity Purely Competitive Labor Market S Monopsony Model Wage Rate (dollars) Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Wu Wc D2 D1 Previous Next Slide Slide Qc Qu End Show 28 - 15 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 16. THREE UNION MODELS Labor,Wages, and Earnings Demand-Enhancement Model ...by increasing General Level of Wages product demand Real Wages and Productivity Purely Competitive Labor Market S ...by increasing productivity Monopsony Model Wage Rate (dollars) Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Wu Wc D2 D1 Previous Next Slide Slide Qc Qu End Show 28 - 16 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 17. THREE UNION MODELS Labor,Wages, and Earnings Demand-Enhancement Model ...by increasing General Level of Wages product demand Real Wages and Productivity Purely Competitive Labor Market S ...by increasing productivity Monopsony Model Wage Rate (dollars) Three Union Models ...by increasing Bilateral Monopoly Model Minimum Wage Controversy the price of Wage Differentials substitutes Pay For Performance Key Terms Wu Wc D2 D1 Previous Next Slide Slide Qc Qu End Show 28 - 17 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 18. THREE UNION MODELS Labor,Wages, and Earnings General Level of Wages Exclusive or Craft Model Real Wages and Productivity Purely Competitive Labor Market Wage Rate (dollars) S1 Monopsony Model Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Wc D Previous Next Slide Slide Qc End Show 28 - 18 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 19. THREE UNION MODELS Labor,Wages, and Earnings General Level of Wages Exclusive or Craft Model ...restrictive Real Wages and Productivity S2 membership Purely Competitive Labor Market Wage Rate (dollars) S1 policies Monopsony Model Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms Wu Wc D Previous Next Slide Slide Qu Qc End Show 28 - 19 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 20. THREE UNION MODELS Labor,Wages, and Earnings General Level of Wages Exclusive or Craft Model ...restrictive Real Wages and Productivity S2 membership Purely Competitive Labor Market S1 policies ...restricting Monopsony Model Wage Rate (dollars) Three Union Models Bilateral Monopoly Model labor supply of Minimum Wage Controversy the economy as Wage Differentials a whole Pay For Performance Key Terms Wu Wc D Previous Next Slide Slide Qu Qc End Show 28 - 20 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 21. THREE UNION MODELS Labor,Wages, and Earnings General Level of Wages Exclusive or Craft Model ...restrictive Real Wages and Productivity S2 membership Purely Competitive Labor Market S1 policies ...restricting Monopsony Model Wage Rate (dollars) Three Union Models Bilateral Monopoly Model labor supply of Minimum Wage Controversy the economy as Wage Differentials a whole Pay For Performance Key Terms Wu …occupational licensing Wc D Previous Next Slide Slide Qu Qc End Show 28 - 21 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 22. THREE UNION MODELS Labor,Wages, and Earnings Inclusive or Industrial Model General Level of Wages ...by organizing Real Wages and Productivity Purely Competitive Labor Market S virtually all workers and Monopsony Model Wage Rate (dollars) Three Union Models thereby control Bilateral Monopoly Model Minimum Wage Controversy of the supply Wage Differentials curve for labor Pay For Performance causing… Key Terms Wc D Previous Next Slide Slide Qc End Show 28 - 22 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 23. THREE UNION MODELS Labor,Wages, and Earnings Inclusive or Industrial Model General Level of Wages ...by organizing Real Wages and Productivity Purely Competitive Labor Market S virtually all workers and Monopsony Model Wage Rate (dollars) Three Union Models thereby control Bilateral Monopoly Model Minimum Wage Controversy of the supply Wage Differentials curve for labor Pay For Performance Wu causing… Key Terms Wc D Previous Next Slide Slide Qu Qc End Show 28 - 23 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 24. WAGE INCREASES Labor, Wages,and Earnings AND UNEMPLOYMENT • Union members receive General Level of Wages Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models about 15% higher wages Bilateral Monopoly Model Minimum Wage Controversy • Negative impact on level of employment Wage Differentials Pay For Performance Key Terms Negative unemployment effect reduced by: Previous Slide Next Slide Growth End Show Elasticity 28 - 24 Copyright McGraw-Hill/Irwin, 2002
- 25. BILATERAL MONOPOLY MODEL Labor,Wages, and Earnings Monopsonist & Union Seek General Level of Wages Different Wage Rates... Real Wages and Productivity Purely Competitive Labor Market S Monopsony Model Wage Rate (dollars) Three Union Models …economic Bilateral Monopoly Model theory Minimum Wage Controversy Wage Differentials cannot Pay For Performance Key Terms Wu determine the actual Wc outcome. Wm D Previous Next Slide Slide Qu=Qm Qc End Show 28 - 25 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 26. BILATERAL MONOPOLY MODEL Labor,Wages, and Earnings Monopsonist & Union Seek General Level of Wages Different Wage Rates... Real Wages and Productivity Purely Competitive Labor Market S Monopsony Model Wage Rate (dollars) Three Union Models …economic Bilateral Monopoly Model theory Minimum Wage Controversy Wage Differentials cannot Pay For Performance Key Terms Wu determine the actual Wc outcome. Wm D Previous Slide Next Slide Desirability of Bilateral Monopoly Qu=Qm Qc End Show 28 - 26 Quantity of Labor Copyright McGraw-Hill/Irwin, 2002
- 27. MINIMUM WAGE Labor, Wages,and Earnings General Level of Wages CONTROVERSY Real Wages and Productivity •Case Against Minimum Wage Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms •Case For Minimum Wage •Evidence and Conclusions Previous Next Slide Slide End Show 28 - 27 Copyright McGraw-Hill/Irwin, 2002
- 28. WAGE DIFFERENTIALS Labor, Wages,and Earnings General Level of Wages Real Wages and Productivity Marginal Revenue Purely Competitive Labor Market Monopsony Model Three Union Models Productivity Noncompeting Groups Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Key Terms • Ability • Education and Training Previous Next • Investment in Human Capital Slide Slide End Show 28 - 28 Copyright McGraw-Hill/Irwin, 2002
- 29. WAGE DIFFERENTIALS Compensating Differences Labor, Wages, and Earnings General Level of Wages Real Wages and Productivity Purely Competitive Labor Market Monopsony Model • Nonmonetary Differences Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Market Imperfections Wage Differentials Pay For Performance • Lack of Job Information • Geographical Immobility Key Terms • Unions & Government Previous Slide Next Slide Restraints End Show • Discrimination 28 - 29 Copyright McGraw-Hill/Irwin, 2002
- 30. PAY FOR PERFORMANCE Labor,Wages, and Earnings General Level of Wages Real Wages and Productivity The Principal-Agent Problem Purely Competitive Labor Market Monopsony Model Three Union Models Incentive Pay Plan Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials • Piece Rates • Commissions or Royalties Pay For Performance Key Terms • Bonuses, Stock Options, & Previous Next Slide Profit Sharing Slide End Show • Efficiency Wages 28 - 30 Copyright McGraw-Hill/Irwin, 2002
- 31. PAY FOR PERFORMANCE Negative Side-Effects of Pay Labor, Wages, and Earnings General Level of Wages Real Wages and Productivity for Performance Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Model • Poor Product Quality Minimum Wage Controversy Wage Differentials • Questionable or Fraudulent Sales Practices Pay For Performance Key Terms • Disruption of Teamwork • Free Ride by Low Producers Previous Slide Next Slide • Low Turnover Decreases End Show Hiring Opportunities 28 - 31 Copyright McGraw-Hill/Irwin, 2002
- 32. PAY FOR PERFORMANCE Negative Side-Effects of Pay Labor, Wages, and Earnings General Level of Wages Real Wages and Productivity for Performance Purely Competitive Labor Market Monopsony Model • Poor Product Quality Chapter Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials • Questionable or Fraudulent Sales Practices Conclusions Pay For Performance Key Terms • Disruption of Teamwork • Free Ride by Low Producers Previous Slide Next Slide • Low Turnover Decreases End Show Hiring Opportunities 28 - 32 Copyright McGraw-Hill/Irwin, 2002
- 33. nominal wage bilateral monopoly real wage minimum wage purely competitive labor market differentials wage monopsony marginal revenue productivity exclusive unionism noncompeting groups occupational licensing investment in human capital inclusive unionism compensating differences incentive pay plan Copyright McGraw-Hill/Irwin 2002 BACK END
- 34. Next: Labor, Wages, andEarnings General Level of Wages Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Model Minimum Wage Controversy Wage Differentials Pay For Performance Rent, Interest, and Profits Key Terms Chapter 29 Previous Next Slide Slide End Show 28 - 34 Copyright McGraw-Hill/Irwin, 2002