human capital and the labor market · for example, a medical practice might decide to outsource its...

Human Capital and the Labor MarketWhy is it important to develop your human capital?

Vocabulary

Glossary VocabularyCards

labor force

offshoring

equilibrium wage

fringe benefits

wage gap

affirmative action

collective bargaining

right-to-work law

Introduction

H U M A N C A P I T A L A N D T H...

2020 Teachers' Curriculum Institute Level: A

Human capital plays a criticalrole in the labor market.

Each year, millions of high school students choose to enter theworkforce. Some get summer jobs to earn extra spending cash beforecollege begins in the fall. Others get jobs to help support their families.Some begin careers in an industry right after high school ends.

But how do these high school students acquire jobs? For most, jobsearching is a difficult and time-consuming process. Hopeful applicantsmust build and edit resumes, write cover letters, and prepare forinterviews. They also must focus on a primary goal: making themselvesstand out. But how can one applicant stand out in a labor market ofalmost 140 million people?

In recent years, social media has changed the ways in which applicantscan stand out. Not only must applicants prepare a resume and coverletter, but they must also curate a professional online presence.Recruiters and hiring managers often use the internet to look up jobapplicants and see if they could be a good fit for their companies.

Education and skills also help an applicant to stand out. For high schoolstudents, some employers may consider school grades orextracurricular activities in the hiring process. High school students canbolster their education background by taking extra classes or attending


Level: A 2020 Teachers' Curriculum Institute

college to further their skills in a particular area.

Once a standout applicant has been hired, they will likely start work inan entry level position. From there, they will accumulate new skills andbuild their experience in a specific field. In turn, this will increase theirability to stand out in future job searches.

In this lesson, you will read about trends that are shaping the labormarket today. You will also learn how you can develop your own humancapital as you prepare to enter the workforce.

1. What Trends Are ShapingToday’s Labor Market?Before social media platforms became massively popular, few peoplewould have believed that someone could make money from simplyspending time on an app like Instagram. However, many people havedone just that. The technology that makes Instagram possible hasopened networking and career opportunities that have never existedbefore.

New technology has often been a driving force behind changes in thejob market, creating new jobs even as it makes others obsolete. Butchanging technology is just one of many trends that have helped toshape the U.S. labor market in recent decades.

A Larger, More Diverse Labor Force One long-term trend has beenthe steady growth of the nation’s labor force, which has increased alongwith the nation’s population. The labor force consists of those peopleage 16 and over who have jobs or who are actively looking for work.The labor force does not include unpaid workers, such as stay-at-homeparents and volunteers. Nor does it include active members of themilitary or prison inmates. In 2018, the U.S. labor force included over163 million people.

A key reason for this growth has been the increased participation ofwomen in the workforce. In 1960, when many women worked ashomemakers, women made up 33 percent of the workforce. As womenincreasingly sought jobs outside the home, that figure rose. By 2018,women made up 47 percent of the labor force. Figure 10.1A shows thepercentage of working-age women in the labor force over the span of ahalf-century.



Figure 10.1AThis graph shows the labor force participation rates for men andwomen since 1960 and projected to 2025. The labor force includes theportion of the population that is working or looking for work.

Members of minority groups have also joined the workforce in growingnumbers since 1960. In 1980, Latinos made up only 5 percent of thelabor force. This number more than tripled by 2018, when Latinoscomprised 18 percent of the labor force.

Older Americans will also remain an important part of the workingpopulation over the next decade. Although some will begin to retireover this time period, many are expected to extend their working livesbeyond the traditional retirement age of 65.

In contrast, the labor force participation of younger Americans has beenslowly decreasing. The main reason for this decline is increased collegeenrollments. Rather than going directly into the workforce, many highschool students are now choosing to continue their educations.

A Shift from Manufacturing to Service Jobs The number ofworkers involved in the production of factory goods has declined. At thesame time, the number of workers who provide services has increased.Jobs in the service sector include food preparation, banking, and healthcare.



This shift toward services continues a long evolution that began withthe Industrial Revolution. By the late 1800s, manufacturing wasreplacing farming as the nation’s most important economic activity.Manufacturing dominated the economy through most of the 1900s.

Beginning in the latter half of the 20th century, however, businessesthat provide services have become the major source of jobs andeconomic growth. Economists expect this trend to continue. Figure10.1B shows how the shift to service jobs is likely to affect futureemployment opportunities.

Figure 10.1BThis graph shows how job opportunities are expected to grow (orshrink) in various occupations. Service occupations include jobs thatdirectly assist the public such as police officers, health care aides, andcooks.

The fact that fewer Americans work in manufacturing these days doesnot mean that factory output is declining in this country. Just theopposite is true. Since 1970, the United States has been one of the



world’s largest producer of manufactured goods. American-madeproducts range from industrial machinery to motorcycles to T-shirts.

Because of gains in productivity, fewer workers are needed to turn outall these goods. Workers today are better educated and trained thanthey were a generation ago. Businesses have invested in labor-savingtechnologies, such as computers and robots. Since 1987, laborproductivity in manufacturing has increased every year.

Factory workers have traditionally earned higher wages than mostservice workers. But this does not mean that all service jobs pay lowwages. In fact, the service sector includes professional fields such aslaw, medicine, and information technology. In these fields, the mostqualified and experienced workers command high salaries.

The Bureau of Labor Statistics, which tracks employment trends,predicts that jobs in the service sector will continue to expand. Figure10.1C shows the 20 fastest-growing occupations based on BLSprojections, most of which are service jobs.



Figure 10.1CThis graph shows the 20 fastestgrowing occupations by 2020 asidentified by the Bureau of Labor Statistics. Note that most of thesefast-growing jobs are in the service sector.

The Growing Importance of Knowledge Workers Another keytrend in the labor market is the growing need for knowledge workers.Management consultant Peter Drucker coined this term in 1959 todescribe people who work with information or who develop or applyinformation in the workplace. Financial advisers, for example, developinformation when they analyze stock market returns. They apply thatknowledge when they provide investment advice to clients.

Knowledge workers are a subset of workers in the service sector. Theyinclude people who work in the information technology field, such ascomputer programmers and systems analysts. Writers, researchers,teachers, lawyers, and scientists are also knowledge workers. Thedemand for knowledge workers is expected to grow as the handling ofinformation becomes an increasingly important part of the economy.



Increased Outsourcing, Temping, and Telecommuting Anotherset of trends in the labor market has to do with changes in the waypeople work. Many people spend less time working at the office andmore time working at home than they did a decade ago. They alsochange jobs more frequently than was the case for previousgenerations.

One key development in recent years is the growth of outsourcing.This term refers to the business practice of sending work once done bycompany employees to outside contractors. Firms decide to outsourcework when they believe an outside supplier can do the work moreefficiently and at a lower cost than can be done within the company.For example, a medical practice might decide to outsource its billingoperations to a firm that specializes in medical billing. Similarly, aschool district might decide to outsource its legal work to an outsidelaw firm. Outsourcing generates work for independent contractors. Itmay also result in the loss of jobs for in-house employees.

The use of temporary workers is also common. Temp workers areemployed for limited periods of time for a variety of reasons. They maybe hired for a project, to fill in for a sick or an absent employee, or toaugment a firm’s workforce during a busy time.

People choose temp work for many reasons. Many enjoy learning newskills as they move from one job to the next. Others value the flexibilitythey have in deciding who to work for and when. They also like beingable to take time off for any reason at any time without asking anyone’spermission. Temps are generally paid as well as or better thanpermanent employees doing the same job. And some view temping as agood way to try out a job before joining a firm as a regular employee.

Telecommuting is another growing practice in the labor market.Telecommuters do much or even all of their work at home, usingphones and computers to remain connected to their workplaces.Telecommuting is especially common among knowledge workers.Writers, for example, can deliver drafts of their work by email withoutever stepping into their employer’s office.



Some companies choose toset up factories overseas inorder to produce their goodsfor less money. This shoefactory in Thailand willproduce goods that will thenbe sold to other countriesaround the world.

The Globalization of Work: Offshoring, Inshoring, and ForeignCompetition Globalization is yet another trend that is transformingthe labor market. Globalization is the process by which people aroundthe world, along with their economic activities, are becomingincreasingly interconnected. As globalization increases, the factors ofproduction—land, labor, and capital—move across borders with greaterease than ever before.

One key aspect of globalization is the growing practice of offshoring,or relocating work and jobs to other countries. Offshoring occurs in twoways. An American firm can either move part of its operations to afacility it sets up in another country or contract with a company inanother country to handle some aspect of its operations.

Firms move work offshore to reduce costs. The sportswear companyNike, for example, contracts with factories in more than 40 countries,including Vietnam and China. These are countries where Nike canachieve higher output for every dollar it spends on labor than it can inthe United States. Charles Wheelan describes why companies maychoose to offshore in his book, Naked Economics: Undressing theDismal Science.

As Charles Wheelan explains,



There are industries in which American workers are notproductive enough to justify their relatively high wages,such as manufacturing textiles and shoes. These areindustries that require relatively unskilled labor, which ismore expensive in this country than in the developingworld. Can a Vietnamese peasant sew basketball shoestogether? Yes—and for a lot less than the Americanminimum wage.

Offshoring is also occurring in the service sector. Many computerprogramming and call-center operations, for example, have beenoffshored to India. With a large number of well-educated, English-speaking workers available at relatively low wages, India has acomparative advantage in these services.

Moving work offshore has both costs and benefits. It lowers the cost ofproduction of many goods. This translates into lower prices forAmerican consumers. The tradeoff is a loss of jobs in some sectors ofthe economy.

Globalization also brings jobs into the U.S. labor market. Many foreignfirms have opened operations in this country. They do so to takeadvantage of the high levels of human capital available here. Thisprocess, known as inshoring, creates jobs for American workers.

As globalization increases, American businesses will face growingcompetition from foreign producers. This competition may cause joblosses in some U.S. industries, but it will also create new jobs in others.Looking at the big picture, economists argue that foreign competition isgood for businesses and economies. It forces producers to becomemore competitive by developing their own comparative advantages.



Figure 10.2ACompetition for apple pickershelps determine marketwages. The same is true inother competitive labormarkets.

2. What Determines How MuchWorkers Earn?When you receive a job offer, the company that wants to hire yousuggests a salary that you are free to accept or reject. How does thecompany decide how much to offer? How do you decide whether theoffer is fair? Both questions can be answered by looking at the wagerates for other, similar positions in the job market. In general, wagerates are determined by the same principle that determines the price of



goods and services: supply and demand.

Wages Reflect the Value of What Workers Produce A number offactors influence wage rates. One has to do with the skills and trainingrequired for a job. Economists categorize jobs according to four generalskill levels.

Unskilled. These jobs require no specialized skills or training. Mostworkers at this level earn a low hourly wage. Examples of unskilled jobsinclude janitors, busboys, and seasonal farmworkers.

Semiskilled. Workers at this level have some specialized skills andtraining, including the ability to use simple tools or equipment.Employees are supervised, and wages are paid on an hourly basis. Jobsinclude cashiers, construction workers, taxi drivers, and fast foodcooks.

Skilled. This level requires specialized skills and training. Workersneed little or no supervision, but most are still paid on an hourly basis.Examples include police officers, carpenters, bank tellers, and factoryworkers who operate complicated machinery.

Professional. This level includes “white collar” jobs that requireadvanced training and specialized skills. Many professional workersreceive a salary. Jobs include doctors, lawyers, teachers, airline pilots,and computer specialists.

In general, wages are based on skill level. As skills and trainingincrease, so do wages. More importantly, however, workers commandwages that reflect the market value of what they produce. Surgeonsare paid more than nurses, for example, because the market places ahigher value on surgery than it does on general nursing care.

Competition among employers to hire workers also helps to raisewages. Figure 10.2A illustrates this point by looking at the effect ofcompetition on wages for apple pickers. In this scenario, Farmer Abegins the harvest season by paying his apple pickers $7.00 an hour.Farmer B, faced with a shortage of workers, decides to offer $8.00 anhour. Lured by the higher wages, a number of workers leave Farmer Aand go to work for Farmer B. As a result of this competition for workers,Farmer A must also raise wages in order to attract and retain newworkers. nursing care.

For the same reason, those who are perceived to be more productiveworkers tend to receive higher wages than those viewed as lessproductive workers. As economist Robert Frank notes, “Workers tend to



be paid in rough proportion to the value they add to their employer’sbottom line.”

How Demand and Supply Work in the Labor Market Farmer Aand Farmer B illustrate a real dynamic that shapes the labor market:the interaction of supply and demand. Employers create the demandfor labor, and workers seeking jobs create the supply. Wages movetoward equilibrium in the labor market just as prices move towardequilibrium in the market for goods and services.

The demand for labor comes from businesses and governmentagencies that compete with each other to hire workers. Demandchanges over time with the state of the economy. When the economy isdoing well, the quantity of labor demanded goes up, and just as anincreased demand for goods tends to raise prices, an increased demandfor labor tends to boost wages. In the case of Farmers A and B,competition for apple pickers forced wages up.

Conversely, wages tend to fall when the supply of labor increases or thedemand for labor decreases. When the number of people seeking jobsexceeds the quantity demanded, employers can offer lower wages andstill find people who are willing to work.

Immigration can play a role in increasing the labor supply and loweringwage rates. In recent decades, competition for jobs from newimmigrants has helped to depress wages at the lower end of the labormarket. That is one reason why many less skilled workers opposeincreased immigration.

The labor supply is also affected by the tradeoff between work andleisure. When wages are low, people may be less inclined to work andmore inclined to pursue other activities. When wages are high,however, workers tend to sacrifice leisure activities in favor of work.

In making such decisions, people are following the costs-versus-benefitsprinciple. For example, suppose you plan to spend time with yourfriends one afternoon when a neighbor offers you a job cleaning hergarage. If she were to offer $5 for an afternoon of work, you wouldprobably say no. But if she were to offer $100, you would probably takethe job. In this case, the benefit of earning $100 would outweigh thecost of not seeing your friends.

Over time, wages tend to move toward equilibrium. An equilibriumwage is a wage rate that results in neither a surplus nor a shortage ofqualified workers.



If the wage for a job is too high, a surplus of workers will apply for thejob and employers will lower the wage. If the wage is too low, too fewpeople will apply, and the wage will have to rise to attract moreworkers. Only when the wage reaches equilibrium will demand andsupply be in balance.

The graphs in Figure 10.2B show equilibrium wages for twooccupations: lawyer and security guard. The wages for these jobs differfor two main reasons. First, the skill level and training required oflawyers is much greater than that required of security guards. Lawyersinvest a great deal of time and money in their education. Therefore, thesupply of lawyers is smaller than the supply of security guards. Thesecond reason is that lawyers perform a higher-value service thansecurity guards do. People are willing to pay more for a lawyer than asecurity guard. Since the lawyer’s labor is more highly valued, the laborwarrants a higher wage.

Figure 10.2BWhen wages reach equilibrium, the number of people willing to work atthat wage equals the number of people that employers are willing tohire at that wage. That equilibrium point is generally higher inoccupations that require extensive education and training.• Note that the supply of lawyers is low relative to demand, whichdrives wages up.• The supply of security guards, in contrast, is high relative to demand,which pushes wages down.

Other Factors that Affect Wages Other factors can also affectwages, including minimum wage laws, working conditions, and cost ofliving.



Minimum wage laws. Minimum wage laws passed by the federal andstate governments can raise wages for low-skill jobs above theequilibrium level. State minimum wage rates vary and may differ fromthe federal rate. Most workers qualify for the minimum wage, butexceptions exist. Workers who do not qualify include people who areself-employed, such as babysitters, and the employees of very smallbusinesses. Around half of all Americans who earn the federal minimumwage or less are young workers under the age of 25.

Working conditions. Jobs with working conditions that areuncomfortable, stressful, or dangerous may also pay higher wages thanless-demanding jobs at similar skill levels. For example, Alaskan crab-fishing crews earn more than fishing crews elsewhere, in part becauseworking conditions are so dangerous in the seas off Alaska due tostorms or freezing temperatures. Similarly, air traffic controllers workunder highly stressful conditions and receive relatively high wages tocompensate for that stress.

Location and cost of living. In some parts of the United States,employers may be willing to pay extra to attract qualified workers. Arural hospital, for example, may pay doctors more than a city hospitalbecause the remote location limits the supply of doctors.

The cost of living in a region also affects wages. Living costs inCalifornia, for example, are much higher than in Florida. Wages in thesestates reflect this difference. For example, mechanical engineers inCalifornia made an average of around $94,000 in 2017 compared tojust under $75,000 for mechanical engineers in Florida.



Crab fishing is one of themost lucrative but dangerousjobs in the world. Violentwinter storms and subzerotemperatures make workingconditions perilous. Tocompensate for thesedangers, Alaskan crab-fishingcrews earn higher wagesthan those who fish in lesshazardous waters.

Rising cost of fringe benefits. The cost of fringe benefits also affectswages. Fringe benefits are nonwage compensations offered toworkers in addition to their pay. Typical benefits include healthinsurance, paid vacation time, and retirement plans.

The cost of such benefits has risen in recent years. Health insurance inparticular has become increasingly expensive. In 1999, employersnationwide spent an average of $4,247 on private health insurance perworker with a family coverage plan. In 2018, employers spent over$14,000 on average. These rising costs have helped to depress wagesin some industries, as employers compensate for high health care costsby holding down wages.

Foreign competition. Competition for jobs in the global market alsohelps to depress wages. As more companies offshore key tasks to low-wage countries, wage rates in the United States face downwardpressure. For example, many American furniture manufacturers nowoffshore production to low-wage countries such as China. Faced withfactory closings, furniture workers in the United States may agree toaccept lower wages in order to keep their jobs.

The Wage Gap and Affirmative Action Historically, wages have



also been influenced by discrimination against certain groups in society.Wage discrimination occurs when some workers are paid less to dothe same job as other workers because of their ethnicity, gender, orother personal characteristics.

The Civil Rights Act of 1964 outlawed discrimination based on gender,race, religion, and country of origin. Nevertheless, a wage gap—adifference in the wages earned by different groups in society—stillexists. For example, since 1964, the wage gap between men andwomen has narrowed, but women on average earn only about four-fifths of what men earn. In 2018, the median weekly income for menworking fulltime was $973. For women, the figure was $789.

Research shows that a gender-based wage gap exists within differentracial and ethnic groups: Asian Americans, whites, African Americans,and Hispanics. There is also a wage gap between these racial andethnic groups, with Asian Americans earning the highest mediansalaries and Hispanics the lowest.

Economists attribute some of the wage gap to measurable factors, suchas difference in educational attainment. However, studies show thatdiscrimination still exists in the labor market. Many economists contendthat the remedy for this problem is market competition. They arguethat firms that discriminate will not be able to compete in the long runbecause they do not take advantage of the whole pool of qualifiedworkers. Therefore, firms that do not discriminate will be moreprofitable than those that do.



Many jobs come with benefitsin addition to a salary orwages. Such benefits usuallyinclude health insurance andpaid vacation time. The risingcost of benefits is squeezingemployers, who maycompensate by holding downwages—or even, as thiscartoon implies, rolling themback.

Nevertheless, there are limits to the power of market forces to enddiscrimination. The United States has antidiscrimination laws to help fillthe gap. Affirmative action initiatives are also intended to preventdiscrimination. These initiatives call on employers to take positive stepsto increase the presence of historically underrepresented groups inemployment, education, and business.

Affirmative action policies have aroused controversy. Critics argue thataffirmative action creates a type of reverse discrimination, or claim thatit creates a racial quota. Supporters, however, do not view affirmativeaction efforts as reverse racism; they believe that these efforts promoteracial diversity and equal opportunity. In a series of landmark cases,the U.S. Supreme Court has narrowly upheld affirmative action in suchareas as college admissions. Still, the debate continues as to whetheraffirmative action is the appropriate means to achieve equalopportunity for all.



3. How Can You Increase YourHuman Capital?Though it may not seem like it, you can take a major step towards acareer in photography if you have an Instagram account. The skills youdevelop on social media can expand your human capital and eventuallylead to a steady job. Developing one’s human capital is the key tosuccess in the job market. But how does a person go about doing that?

The Starting Point: Aptitudes, Interests, and AspirationsDeveloping your human capital is a lifelong pursuit. It continues as longas you are expanding your skills, experience, and knowledge.

The first step in building your human capital is to identify youraptitudes, interests, and aspirations. In other words, think about whatyou are good at, what you like to do, and what you hope to accomplishin your working life.



This assessment can only be done through honest self-evaluation. It isimportant to be realistic about your skills and abilities, but it is alsoimportant to pursue your dreams. It is not always easy to assessyourself. Fortunately, there are some tools that can help. Careercounselors can offer useful advice and help steer you in the rightdirection. Many self-help books focus on helping readers to find anddevelop a career path. Aptitude tests and skills inventories can alsohelp you analyze your abilities and interests.

All states require certificationor a license to practicecertain professions. Aftergraduating from nursingschool, this registered nursehad to pass a nationallicensing exam to get a job.Licensing exams help ensurethat people in certainprofessions are competent intheir fields.

Becoming Qualified: Education, Certification, and LicensingEducation is one of the main routes to developing human capital. Agood general education gives you many tools for success in the workingworld. A more advanced education will help you progress even further.There are many ways to advance your education beyond high school.Besides the traditional four-year college or university, there arecommunity colleges, technical institutes, job-training programs, andonline courses.

Higher education may also qualify you for certification or licensing topractice a particular profession. Certification is an official recognitionthat a person is qualified in his or her field. In some professions,



certification is required by law. Teachers, for example, must be statecertified to teach in public schools. Doctors must pass state licensingexams to practice medicine. In other fields, certification is voluntary.However, certification is usually recommended as a way for aspiringprofessionals to show their competence and commitment to their field.

Education will also help you earn more money. The difference in wagespaid to high school and college graduates has grown over the years. Ingeneral, wages are rising faster for more educated, more skilledworkers than for less educated, less skilled workers. In 1979, peoplewith college degrees earned 134 percent of the wages of peoplewithout degrees. By 2016, this gap had widened further, increasing to168 percent.

The value of a college degree is increasing for several reasons. As U.S.businesses seek a comparative advantage in the global economy, thedemand for well-educated knowledge workers is growing. Manyemployers believe that a college education makes workers moreproductive. Others see a college degree as a sign of motivation andgeneral ability. Either way, a college degree serves as a screeningdevice that employers can use to identify high-value employees.

Gaining Work Experience and On-the-Job Training Another wayto build your human capital is through work experience and on-the-jobtraining. When hiring new workers, employers often look for people whohave significant experience and have developed useful job skills. Theimportance of work experience explains why wages tend to rise thelonger a person has been in the labor force.

Of course, getting a job can be difficult when you lack work experiencein the first place. But it is not impossible. Some employers prefer to hirepeople they can train on the job. A restaurant, for example, might hire acook trainee who would start out doing low-level kitchen tasks. Overtime, a cook trainee would learn how the kitchen works and how toprepare items on the menu. For a trainee who is dependable and willingto work hard, on-the-job training can be the first step on a career path.

Another way to get a job when you have no experience is to seek out anentry-level position in a field that interests you. Typically, entry-leveljobs—such as office assistant and sales assistant—do not pay much.But they can provide valuable experience and allow you to startbuilding a work history. By starting at the bottom, you show yourwillingness to work and to gain the experience and skills you need tomove up the job ladder.



Increasing Personal Productivity: Effort and High StandardsThe level of energy and enthusiasm that workers bring to a job alsoincreases their value to employers. The workers who stand out areoften those who make the greatest effort and hold themselves to thehighest standards. An employer may respond to an employees effortsand enthusiasm with a pay raise or promotion.

In some jobs, workers are rewarded based on how much they produce.This is true in many sales jobs, for example, where people work oncommission and earn a percentage of everything they sell. Other jobsmay pay year-end bonuses or offer salary increases based on workerproductivity. In either case, workers enhance their job opportunities bymaking the effort to work hard and excel at what they do.

Building a Personal-Professional Network People can alsodevelop their human capital by building a personal-professionalnetwork of friends and colleagues. One way to do this is to join aprofessional association, labor union, or other type of occupationalgroup. Belonging to such a group can help people develop workcontacts and create a sense of community in their chosen field.

Other ways of building a personal-professional network include gettinginvolved in community affairs, volunteering, or participating in a localsports team. Such activities help people expand their connectionswithin the community. These connections can have positive effects ontheir working lives by creating new job contacts and new opportunitiesfor professional growth. They may even lead to more job opportunitiesin the future.



4. What Role Do Unions Play inthe Labor Market?On the first Monday in September, many of us attend picnics and otherevents associated with Labor Day. The roots of this holiday go back to1882, when labor organizers in New York City held a parade tocelebrate the role of workers in American life. The celebration becamean annual event and soon spread to other cities. In 1894, Congresspassed a law making Labor Day an official national holiday.

The Origins of the Union Movement Labor Day owes its existenceto the union movement, which began in the late 1800s. At the time,many U.S. workers suffered from harsh working conditions in factoriesand mines. They worked long hours for low pay, often in unhealthy ordangerous circumstances. If workers complained, they were likely to befired. In response, workers formed unions to help protect their interests.These early unions were relatively small and lacked the power tonegotiate with factory owners.



In the late 1800s, however, small unions began to join together to formlarger labor federations. The first such federation was the Knights ofLabor. Founded in 1869, it brought together both skilled and unskilledworkers.

The Knights of Labor soon faced competitors. One was the AmericanFederation of Labor. The AFL concentrated mainly on organizing skilledworkers. Another was the Industrial Workers of the World. The IWWsought to unite all workers, both skilled and unskilled, under the motto“an injury to one is an injury to all.”

Speaking for their members with one voice, union leaders bargainedwith employers for better pay and working conditions. If negotiationsfailed, unions called on workers to strike. During a strike, workersrefused to work until their demands were met.

Employers fiercely resisted the union movement. Some used theirinfluence with government officials to block union organizing. Othersrequired employees to sign yellow-dog contracts , which prohibitedworkers from joining unions. Employers responded to strikes by hiringstrikebreakers to force the strikers back to work.

The Golden Age of Labor Unions Despite setbacks, the unionmovement continued to grow for several decades. During the GreatDepression of the 1930s, unions enjoyed their greatest success underthe New Deal policies created by President Franklin D. Roosevelt.

At the president’s urging, Congress passed the National Labor RelationsAct in 1935. Also known as the Wagner Act, this law guaranteedworkers “the right to self-organization, to form, join, or assist labororganizations, [and] to bargain collectively through representatives oftheir own choosing.” The law also permitted closed shops. A closedshop is a business that will only hire workers who are union members.

Gaining the right to “bargain collectively” was a breakthrough forunions. Collective bargaining is a process in which workers,represented by their union, negotiate with employers for better wages



and working conditions. The Wagner Act required employers to bargainin “good faith.”

The Wagner Act ushered in a “golden age” of labor unionism. Duringthis period, union membership increased and workers enjoyed risingpay and benefits. Encouraged by such success, several large unionscame together in 1938 to form a new labor federation, the Congress ofIndustrial Organizations. The CIO would later merge with the AFL tocreate the AFL-CIO.

By the late 1940s, however, many in business and government felt thatthe Wagner Act had gone too far in empowering labor unions. In 1947,Congress passed the Taft-Hartley Act to rein in the unions. This lawoutlawed the closed shop and placed limits on the power of unions toorganize and strike. It did, however, allow union shops. In a unionshop, workers are required to join the union after being hired.

The Taft-Hartley Act also permitted states to pass right-to-work laws.These laws make it illegal to require workers to join a union as acondition of their employment. In effect, right-to-work laws ban theunion shop. Currently there are some 20 right-to-work states. Mostare located in the South and West. Supporters of these laws believethat people should have the right to choose whether they join a unionor not. But opponents believe that it allows some workers to benefitfrom union led progress, such as higher pay, without contributing to theunion itself.

The Modern Union Movement Despite the restrictions of the Taft-Hartley Act, the number of union members continued to increase intothe 1970s. Union membership peaked at more than 22 million in 1975.But by then union membership had begun to decline. In 1970, one outof every four American workers belonged to a union. By 2018, thatnumber was about one in ten.

The profile of union members has also changed since the 1970s. Ageneration or two ago, the typical union member was a factory worker.Today, as the bar graph in Figure 10.4 shows, that worker is more likelyto be a government employee, such as a teacher or a police officer,than a factory worker.

Economists cite a number of reasons for the drop in union membership.One is the loss of manufacturing jobs and the rise of service industries.Historically, service workers have been difficult to organize. In addition,the government now guarantees many of the rights unions once had tofight for, such as workplace safety and an eight-hour workday. Also,



changes in law have made it easier for employers to win concessionsfrom unions. Employers may threaten to outsource jobs, for example,rather than concede to union demands.

In a bid to reverse the downward trend in union membership, sevenmajor unions representing 6 million members broke away from the AFL-CIO in 2005. They then joined forces to create the Change to Winfederation. This new labor federation is largely made up of service-sector unions that represent female, immigrant, and minority workers.

Despite the formation of Change to Win, union influence appears to becontinuing its decline. States are increasingly turning to legislation totry to limit the power of unions. Legislators in Michigan, traditionally astate with a strong union presence, passed right-to-work laws in late2012. This legislation could prove to be yet another blow to the alreadydeclining labor movement.

Bread-and-Butter Unionism Today: Wages, Benefits, and JobSecurity To expand union membership, Change to Win isconcentrating on bread-and-butter unionism. This means focusingon the economic issues that affect workers’ daily lives. Change to Winsummarizes these issues as “a paycheck that can support a family,affordable health care, a secure retirement and dignity on the job.”

Figure 10.4As the line graph shows, the percentage of American workers whobelong to unions rose and then fell over the past century. The circlegraph shows the percentage of union members employed in variousparts of the economy in 2017.



Unions often lead strikeswhen they believe thatworking conditions are unfairor unhealthy. Afternegotiations about bread-and-butter issues like alivable salary broke downbetween union leaders andthe Oakland Unified SchoolDistrict, union membersorganized the strike picturedhere.

By focusing on these bread-and-butter issues, unions perform a vitalfunction for many American workers. They work to secure better payand improved benefits for their members. They try to save workers’jobs when companies engage in outsourcing and offshoring. Theyprovide information to workers about their rights as employees. Someunions provide training to help workers improve their job skills. Byhelping to build human capital in this way, unions not only providebenefits to their members, but also to the organizations that employthem.

This brings us back to the question we began with: Why is it importantto develop your human capital? The answer is both simple andcomplex. Human capital is one of the most important factors thatdetermine a worker’s value in the labor market. But human capital isnot a simple set of skills. It also encompasses aptitudes, knowledge,experience, motivation, energy, and attitude. As you prepare to enterthe labor market, remember that your human capital is your mostvaluable resource. The more you develop it now, the more success youwill enjoy in the world of work.



SummaryChanges in the labor market are having an effect on the jobs and wagesavailable to American workers. As the labor market evolves, it becomesmore important than ever for workers to develop their human capital.

What trends are shaping today’s labor market? An influx ofwomen and minorities has changed the labor force in recent decades.In addition, job growth has shifted from manufacturing to the servicesector, and knowledge workers have become increasingly important.Globalization is also having an impact as foreign trade and competitionhave increased both the offshoring and inshoring of jobs.

What determines how much workers earn? Wage rates reflectvarious factors in the labor market. Wages primarily depend on the skilllevel of workers and the value of what they produce. Like the price ofgoods and services, wages are set by supply and demand. Wage ratesmove toward equilibrium as the demand for workers with the skillsneeded for a given job and the supply of such workers come intobalance.

What can you do to increase your human capital? The first stepto increasing your human capital is to identify your abilities, interests,and goals. After that, get the education you will need to meet anylicensing or certification requirements. Other key steps include gainingwork experience, holding yourself to high performance standards, andbuilding a network of friends and colleagues.

What role do unions play in the labor market? Historically,unions have helped workers defend their rights and improve their payand working conditions. Although union membership has declined inrecent decades, unions today are still helping many workers achieveconcrete gains in the workplace.

International Labor Issues:Worker Exploitation andImmigrant LaborThe growth of the global economy has had an impact on laborconditions both at home and abroad. This essay examines two issues



related to international labor. It looks at the problem of workerexploitation in poor countries, focusing on concerns about child laborand sweatshop industries. It also considers the issue of immigrantworkers and their impact on the labor market in the United States.

Worker Exploitation: Child Labor and Sweatshops

Historically, workers around the world have often had to work longhours, in unsafe conditions, for low pay. Labor unions were formed toaddress this problem and protect the rights of workers. In richer,developed countries with a history of union organizing, workers havegenerally improved their pay and working conditions. However, inpoorer, developing nations, where unions are often weaker, workersmay still be severely exploited.

Concerns about exploitation often focus on child labor and sweatshopindustries. In some parts of the world, child labor is very common.According to UNICEF, the United Nations Children's Fund, 158 millionchildren between the ages of 5 and 14 are engaged in child labor.That's one in every six children around the world. They work in mines,in textile mills, as domestic servants, and in many other occupations.They may be forced to work by their parents or other adults. The workis often hard and the conditions abusive.

In some cases, this work takes place in sweatshops. These are smallfactories, workshops, or assembly plants where workers must put inlong hours for low pay and often under hazardous conditions. In atypical sweatshop, workers have few rights and little chance ofimproving their wages or work environment.

Some people fear that globalization is contributing to workerexploitation. As businesses move from richer countries to poorercountries to take advantage of lower wages and other cost savings,they may be adding to problems of child labor, sweatshops, and otherforms of exploitation. In opinion polls, a majority of Americans say theywant to see higher labor standards enforced for foreign workers. Theysay they do not want to buy products produced in sweatshops or madeby child workers.

At the same time, some economists contend that child labor andsweatshops would not exist if people weren't willing to take the jobs.They point out that workers in poor countries often find sweatshops animprovement over working in agriculture, mining, or various otheroccupations. By providing employment, even at low wages, sweatshopindustries may offer workers in poor countries better opportunities than



they would otherwise have.

Immigrant Workers and the U.S. Labor Market

Another international labor issue involves immigrant workers in theUnited States. Although some immigrants have legal work visas, othersdo not. Most undocumented workers enter the country illegally, usuallyby crossing the border from Mexico. Some Americans contend thatundocumented immigrants harm the U.S. labor market by increasingcompetition for jobs and lowering wages for American workers. Othersargue that immigrant workers bring large benefits to the U.S. economy.

Though making such estimates is difficult, between 9 million and 20million undocumented immigrants live in the United States. Most ofthem are here to find work. Many are unskilled and are willing to workfor relatively low pay. For that reason, and because they increase thelabor supply, undocumented workers may hold down wage rates. Theymight also be hired into jobs that might otherwise be available toAmerican workers. All these factors could be argued to have a negativeeffect on the U.S. job market.

At the same time, the impact of immigrants on employment and wagesis moderated by other factors. Unskilled, undocumented workers oftendo jobs that most Americans are unwilling to do. In general, the U.S.workers who face significant job competition from undocumentedimmigrants are those with few job skills and little education. Othersectors of the labor market are barely affected. Furthermore, althoughundocumented workers may be hired into jobs that could go to U.S.workers, undocumented works also spend money and create demandthat leads to new jobs. In fact, many economists contend thatundocumented workers bring net economic benefits to the economy byproviding low-wage labor that lowers the cost of goods and servicesand stimulates economic growth.



human capital and the labor market · for example, a medical practice might decide to outsource its...

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