ppt on wage determation
TRANSCRIPT
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7/28/2019 Ppt on Wage Determation
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
Slide
Next
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End
Show
WageDetermination
28C H A P T E R
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
Show
Wages Defined...
Wages - - Salary - - Earnings
Wage RateNominal Wages
Real WagesInternational differences...
LABOR, WAGES, AND EARNINGS
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
Show
0 5 10 15 20 25GermanyDenmark
Switzerland
United StatesJapan
SwedenUnited Kingdom
France
CanadaItaly
AustraliaKorea
Taiwan
Mexico
GLOBAL PERSPECTIVE
Hourly Wages of Production Workers,
Selected Nations
Source: U.S. Bureau of Labor Statistics, 2003
Hourly Pay in U.S. Doll ars, 2001
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
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GENERAL LEVEL OF WAGES
Role of ProductivityPlentiful Capital
Access to AbundantNatural Resources
Advanced TechnologyLabor Quality
Other Factors
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
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REAL WAGES ANDPRODUCTIVITY
Growth in real income (earnings)
Growth in output per worker-hour
Can only grow at
about thesamerate!
Secular Growth of Real Wages
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
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PURELY COMPETITIVE
LABOR MARKET
Purely competi tive labor market:
Many Firms
Numerous Qualified Workers
Wage TakerBehavior
Market Demand for Labor
Market Supply of Labor
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Copyright McGraw-Hill/Irwin, 2005
Labor, Wages, and
Earnings
General Level of
Wages
Real Wages and
Productivity
Purely Competitive
Labor Market
Monopsony Model
Three Union ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
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Non-
LaborCosts
Labor
Costs
PURELY COMPETITIVE LABOR
MARKET EQUILIBRIUM
Labo r Market
S
D = MRP
(mrps)
Wc
(1000)
Ind iv idual Firm
S= MRC
d= mrp
Wc
Quantity of Labor
W
ageRate(do
llars)
Quantity of Labor
($10)
(5)
$10$10$10$10$10$10
Includes
Normal
Profit
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Copyright McGraw-Hill/Irwin, 2005
Labor, Wages, and
Earnings
General Level of
Wages
Real Wages and
Productivity
Purely Competitive
Labor Market
Monopsony Model
Three Union ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
Show
Non-
LaborCosts
Labor
Costs
Includes
Normal
Profit
Labo r Market
S
D = MRP
(mrps)
Wc
(1000)
Ind iv idual Firm
S= MRC
d= mrp
Wc
Quantity of Labor
W
ageRate(do
llars)
Quantity of Labor
($10)
(5)
$10$10$10$10$10$10
Marginal Resource
Cost(MRC)w i ll be
cons tant and equal to
resou rce pr ice
(the wage rate)
PURELY COMPETITIVE LABOR
MARKET EQUILIBRIUM
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
Show
MONOPSONY MODEL
Single Buyer of a type oflabor
The type of labor isrelatively immobile
Wage Maker Behavior
Upward-Sloping Supply
Curve to F irm
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
Show
WageRate(d
ollars)
S
Quantity of Labor
MONOPSONISTICLABOR MARKET
I n monopsony
MRC lies above
the supply curve.
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Labor, Wages, and
Earnings
General Level of
Wages
Real Wages and
Productivity
Purely Competitive
Labor Market
Monopsony Model
Three Union ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
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Next
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End
Show
WageRate(d
ollars)
MRP
S
Wm
Quantity of Labor
MRC
Qm
MONOPSONISTICLABOR MARKET
MRP = MRC
Qmuni ts oflabo r h ired
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
Slide
Next
Slide
End
Show
WageRate(d
ollars)
MRP
S
Wm
Quantity of Labor
MRC
Wc
Qm Qc
The competi tive
solution would
resul t in a higherwage and greater
employment.
MONOPSONISTICLABOR MARKET
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
Slide
Next
Slide
End
Show
WageRate(d
ollars)
MRP
S
Wm
Quantity of Labor
MRC
Wc
Qm Qc
The competi tive
solution would
resul t in a higherwage and greater
employment
MONOPSONISTICLABOR MARKET
Monopsonists maximize
prof i ts by hir ing a smaller
number of workers andthereby paying a less-than-
competi tive wage rate.
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
Slide
Next
Slide
End
Show
W
ageRate(dollars)
D1
S
Quantity of Labor
Wc
Qc
THREE UNION MODELSDemand-Enhancement Model
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28 - 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 ModelsBilateral Monopoly
Model
Minimum Wage
Controversy
Wage Differentials
Pay For Performance
Key Terms
Previous
Slide
Next
Slide
End
Show
Wu
Qu
W
ageRate(dollars)
D1
S
Quantity of Labor
Wc
Qc
D2
...by increasing
product demand
THREE UNION MODELSDemand-Enhancement Model
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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
Previous
Slide
Next
Slide
End
Show
Wu
Qu
W
ageRate(dollars)
D1
S
Quantity of Labor
Wc
Qc
D2
...by increasing
product demand
...by increasing
productivity
THREE UNION MODELSDemand-Enhancement Model
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28 - 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
Previous
Slide
Next
Slide
End
Show
Wu
Qu
W
ageRate(dollars)
D1
S
Quantity of Labor
Wc
Qc
D2
...by increasing
product demand
...by increasing
productivity
...by increasing
the price of
substitutes
THREE UNION MODELSDemand-Enhancement Model
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28 - 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
Previous
Slide
Next
Slide
End
Show
W
ageRate(dollars)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSExclusive or Craft Model
S1
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28 - 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
Previous
Slide
Next
Slide
End
Show
Wu
WageRate(dollars)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSExclusive or Craft Model
Qu
S1
...restrictive
membership
policies
S2
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28 - 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
Previous
Slide
Next
Slide
End
Show
Wu
WageRate(dollars)
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
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28 - 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
Previous
Slide
Next
Slide
End
Show
Wu
WageRate(dollars)
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 wholeoccupational
licensing
S2
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28 - 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
Previous
Slide
Next
Slide
End
Show
WageRate(dollars)
Quantity of Labor
Wc
Qc
THREE UNION MODELSI nclusive or I ndustrial Model
D
S
...by organizing
vir tuall y all
workers and
thereby control
of the supply
curve for laborcausing
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28 - 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
Previous
Slide
Next
Slide
End
Show
Wu
WageRate(dollars)
D
Quantity of Labor
Wc
Qc
THREE UNION MODELSI nclusive or I ndustrial Model
Qu
D
...by organizing
vir tuall y all
workers and
thereby control
of the supply
curve for laborcausing
S
Qe
WAGE INCREASES
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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
Previous
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Next
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End
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WAGE INCREASESAND UNEMPLOYMENT
Union members receiveabout 15% higher wages
Negative impact on level of
employment
Negative unemployment effect
reduced by:Growth
Elasticity
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28 - 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
Previous
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Next
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End
Show
BILATERAL MONOPOLY MODELMonopsonist & Union Seek
Different Wage Rates...
economic
theory
cannotdetermine
the actual
outcome.
MRC
Wu
WageRate(dollars)
D
Quantity of Labor
Wc
Qc
D=MRP
S
Qu=Qm
Wm
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28 - 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
Previous
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Next
Slide
End
Show
MRC
Wu
WageRate(dollars)
D
Quantity of Labor
Wc
Qc
BILATERAL MONOPOLY MODELMonopsonist & Union Seek
Different Wage Rates...
D=MRP
S
economic
theory
cannotdetermine
the actual
outcome.
Qu=Qm
Wm
Desirabi l i ty of Bilateral Monopoly
MINIMUM WAGE
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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
Previous
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Next
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End
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MINIMUM WAGECONTROVERSY
Case AgainstMinimum Wage
Case ForMinimumWage
Evidence and
Conclusions
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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
Previous
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Next
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End
Show
WAGE DIFFERENTIALS
Marginal Revenue
Productivity
Noncompeting Groups
Ability
Education and Training
Investment in Human
Capital
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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
Previous
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Next
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End
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WAGE DIFFERENTIALS
Compensating DifferencesNonmonetary Differences
Market ImperfectionsLack of Job InformationGeographical Immobility
Unions & GovernmentRestraints
Discrimination
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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
Previous
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Next
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End
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PAY FOR PERFORMANCE
The Principal-Agent Problem
Incentive Pay Plan
Piece Rates
Commissions or Royalties
Bonuses, Stock Options, &
Profit Sharing
Efficiency Wages
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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
Previous
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Next
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End
Show
PAY FOR PERFORMANCE
Negative Side-Effects of Pay
for PerformancePoor Product Quality
Questionable or FraudulentSales Practices
Disruption of Teamwork
Free Ride by Low ProducersLow Turnover Decreases
Hiring Opportunities
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wage ratenominal wage
real wage
purely competitive labormarket
monopsony
exclusive unionism
occupational licensing
inclusive unionism
bilateral monopolyminimum wage
wage differentials
marginal revenueproductivity
noncompeting groups
investment in human capital
compensating differences
incentive pay planENDBACKCopyright McGraw-Hill/Irwin, Inc. 2005
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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
Previous
Slide
Next
Slide
End
Show
Next:
Rent, Interest, and Profit
Chapter 29