15 - 1 copyright mcgraw-hill/irwin, 2005 labor, wages, and earnings general level of wages real...
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15 - 1Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wage Determination
HELP
WANTED
15C H A P T E R
15 - 2Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wages Defined...Wages - - Salary - - Earnings
Wage RateNominal WagesReal Wages
International differences...
LABOR, WAGES, AND EARNINGS
15 - 3Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
0 5 10 15 20 25GermanyDenmark
SwitzerlandUnited States
JapanSweden
United KingdomFrance
CanadaItaly
AustraliaKorea
TaiwanMexico
GLOBAL PERSPECTIVEHourly Wages of Production Workers,Selected Nations
Source: U.S. Bureau of Labor Statistics, 2003
Hourly Pay in U.S. Dollars, 2001
15 - 4Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
GENERAL LEVEL OF WAGES
Role of Productivity• Plentiful Capital• Access to Abundant Natural Resources
• Advanced Technology• Labor Quality• Other Factors
15 - 5Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
REAL WAGES ANDPRODUCTIVITY
Growth in real income (earnings)
Growth in output per worker-hour
Can only grow at
about the same rate!
Secular Growth of Real Wages
15 - 6Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PURELY COMPETITIVELABOR MARKET
Purely competitive labor market:
Many Firms
Numerous Qualified Workers
“Wage Taker” Behavior
Market Demand for Labor
Market Supply of Labor
15 - 7Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Non-LaborCosts
LaborCosts
PURELY COMPETITIVE LABORMARKET EQUILIBRIUM
Labor Market
S
D = MRP( mrp’s)
Wc
(1000)
Individual Firm
S = MRC
d = mrp
Wc
Quantity of Labor
Wa
ge
Ra
te (
do
llars
)
Quantity of Labor
($10)
(5)
$10 $10 $10 $10 $10 $10
IncludesNormalProfit
15 - 8Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Non-LaborCosts
LaborCosts
IncludesNormalProfit
Labor Market
S
D = MRP( mrp’s)
Wc
(1000)
Individual Firm
S = MRC
d = mrp
Wc
Quantity of Labor
Wa
ge
Ra
te (
do
llars
)
Quantity of Labor
($10)
(5)
$10 $10 $10 $10 $10 $10
Marginal ResourceCost (MRC) will be
constant and equal toresource price(the wage rate).
PURELY COMPETITIVE LABORMARKET EQUILIBRIUM
15 - 9Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MONOPSONY MODEL
•Single Buyer of a type of labor
•The type of labor is relatively immobile “Wage Maker” Behavior
Upward-Sloping SupplyCurve to Firm
15 - 10Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wa
ge
Ra
te (
do
llars
)S
Quantity of Labor
MONOPSONISTICLABOR MARKET
In monopsonyMRC lies abovethe supply curve.
15 - 11Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wa
ge
Ra
te (
do
llars
)
MRP
S
Wm
Quantity of Labor
MRC
Qm
MONOPSONISTICLABOR MARKET
MRP = MRC
Qm units oflabor hired
15 - 12Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wa
ge
Ra
te (
do
llars
)
MRP
S
Wm
Quantity of Labor
MRC
Wc
Qm Qc
The competitivesolution would
result in a higherwage and greater
Employment.
MONOPSONISTICLABOR MARKET
15 - 13Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wa
ge
Ra
te (
do
llars
)
MRP
S
Wm
Quantity of Labor
MRC
Wc
Qm Qc
The competitivesolution would
result in a higherwage and greater
employment
MONOPSONISTICLABOR MARKET
Monopsonists maximizeprofits by hiring a smaller
number of workers andthereby paying a less-than-
competitive wage rate.
15 - 14Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wag
e R
ate
(do
llar
s)
D1
S
Quantity of Labor
Wc
Qc
THREE UNION MODELSDemand-Enhancement Model
15 - 15Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Qu
Wag
e R
ate
(do
llar
s)
D1
S
Quantity of Labor
Wc
Qc
D2
...by increasingproduct demand
THREE UNION MODELSDemand-Enhancement Model
15 - 16Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Qu
Wag
e R
ate
(do
llar
s)
D1
S
Quantity of Labor
Wc
Qc
D2
...by increasingproduct demand...by increasingproductivity
THREE UNION MODELSDemand-Enhancement Model
15 - 17Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Qu
Wag
e R
ate
(do
llar
s)
D1
S
Quantity of Labor
Wc
Qc
D2
...by increasingproduct demand...by increasingproductivity...by increasingthe price ofsubstitutes
THREE UNION MODELSDemand-Enhancement Model
15 - 18Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSExclusive or Craft Model
S1
15 - 19Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSExclusive or Craft Model
Qu
S1
...restrictive membership policies
S2
15 - 20Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSExclusive or Craft Model
Qu
S1
...restrictive membership policies...restricting labor supply of the economy as a whole
S2
15 - 21Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSExclusive or Craft Model
Qu
S1
...restrictive membership policies...restricting labor supply of the economy as a whole…occupational licensing
S2
15 - 22Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wag
e R
ate
(do
llar
s)
Quantity of Labor
Wc
Qc
THREE UNION MODELSInclusive or Industrial Model
D
S
...by organizing virtually all workers and thereby control of the supply curve for labor causing…
15 - 23Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wu
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSInclusive or Industrial Model
Qu
D
...by organizing virtually all workers and thereby control of the supply curve for labor causing…
S
Qe
15 - 24Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
WAGE INCREASESAND UNEMPLOYMENT
• Union members receive about 15% higher wages
• Negative impact on level of employment
Negative unemployment effect reduced by:
GrowthElasticity
15 - 25Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
BILATERAL MONOPOLY MODELMonopsonist & Union SeekDifferent Wage Rates...
…economic theorycannot
determine the actual outcome.
MRC
Wu
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
D=MRP
S
Qu=Qm
Wm
15 - 26Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MRC
Wu
Wag
e R
ate
(do
llar
s)
D
Quantity of Labor
Wc
Qc
BILATERAL MONOPOLY MODELMonopsonist & Union SeekDifferent Wage Rates...
D=MRP
S
…economic theorycannot
determine the actual outcome.
Qu=Qm
Wm
Desirability of Bilateral Monopoly
15 - 27Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MINIMUM WAGECONTROVERSY
•Case Against Minimum Wage•Case For Minimum
Wage•Evidence and Conclusions
15 - 28Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
WAGE DIFFERENTIALSMarginal Revenue Productivity
Noncompeting Groups•Ability•Education and Training
•Investment in Human Capital
15 - 29Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
WAGE DIFFERENTIALSCompensating Differences
•Nonmonetary DifferencesMarket Imperfections
•Lack of Job Information•Geographical Immobility•Unions & Government Restraints
•Discrimination
15 - 30Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PAY FOR PERFORMANCE
The Principal-Agent Problem
Incentive Pay Plan• Piece Rates• Commissions or Royalties• Bonuses, Stock Options, &
Profit Sharing• Efficiency Wages
15 - 31Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PAY FOR PERFORMANCENegative Side-Effects of Pay
for Performance•Poor Product Quality•Questionable or Fraudulent Sales Practices
•Disruption of Teamwork•Free Ride by Low Producers•Low Turnover Decreases Hiring Opportunities
wage ratenominal wagereal wagepurely competitive labor marketmonopsonyexclusive unionismoccupational licensinginclusive unionism
bilateral monopolyminimum wagewage differentialsmarginal revenue productivitynoncompeting groupsinvestment in human capitalcompensating differences incentive pay plan
ENDBACKCopyright McGraw-Hill/Irwin, Inc. 2005
15 - 33Copyright McGraw-Hill/Irwin, 2005
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
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Next:
Rent, Interest, and Profit
Chapter 16
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