The document discusses different models of wage determination, including: 1) Purely competitive labor market model where wages are determined by supply and demand. 2) Monopsony model where a single firm is the only buyer of labor and faces an upward sloping supply curve. 3) Three union models - demand enhancement model, exclusive/craft model, and inclusive/industrial model - and how unions can impact wages.

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Labor, Wages, and Earnings
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
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Determination
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Copyright McGraw-Hill/Irwin, 2002

2. LABOR, WAGES, AND EARNINGS
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
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Slide Slide International differences...
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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
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Canada
Slide Slide Korea
End Taiwan
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28 - 3 Source: U.S. Bureau of Labor Statistics
Copyright McGraw-Hill/Irwin, 2002

4. GENERAL LEVEL OF WAGES
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
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• Labor Quality
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• 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!
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Secular Growth of Real Wages
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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
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Market Demand for Labor
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Market Supply of Labor
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Copyright McGraw-Hill/Irwin, 2002

7. LABOR SUPPLY AND DEMAND
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
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Labor Market Individual Firm
Copyright McGraw-Hill/Irwin, 2002

8. LABOR SUPPLY AND DEMAND
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)
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Labor Market Individual Firm
Copyright McGraw-Hill/Irwin, 2002

9. Labor, Wages, and Earnings
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
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Upward-Sloping Supply
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Curve to Firm
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Copyright McGraw-Hill/Irwin, 2002

10. MONOPSONISTIC
Labor, Wages, and Earnings
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
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End
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Copyright McGraw-Hill/Irwin, 2002

11. MONOPSONISTIC
Labor, Wages, and Earnings
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
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Qm
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Copyright McGraw-Hill/Irwin, 2002

12. MONOPSONISTIC
Labor, Wages, and Earnings
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
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End
Qm Qc
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Copyright McGraw-Hill/Irwin, 2002

13. MONOPSONISTIC
Labor, Wages, and Earnings
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
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End
Qm Qc
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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
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Qc
End
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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
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Qc Qu
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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
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Qc Qu
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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
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Qc Qu
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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
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Qc
End
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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
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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
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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
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Qu Qc
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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
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Qc
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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
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Qu Qc
End
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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:
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Growth
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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
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Qu=Qm Qc
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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
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Desirability of Bilateral Monopoly
Qu=Qm Qc
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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
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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
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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
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Restraints
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• Discrimination
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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
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Profit Sharing
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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
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• Low Turnover Decreases
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Hiring Opportunities
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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
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Next
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• Low Turnover Decreases
End
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Hiring Opportunities
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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, and Earnings
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
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Copyright McGraw-Hill/Irwin, 2002