ppt on wage determation

7/28/2019 Ppt on Wage Determation

1/33

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

Slide

End

Show

WageDetermination

28C H A P T E R


2/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

End

Show

Wages Defined...

Wages - - Salary - - Earnings

Wage RateNominal Wages

Real WagesInternational differences...

LABOR, WAGES, AND EARNINGS


3/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

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


4/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

End

Show

GENERAL LEVEL OF WAGES

Role of ProductivityPlentiful Capital

Access to AbundantNatural Resources

Advanced TechnologyLabor Quality

Other Factors


5/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

End

Show

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


6/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

End

Show

PURELY COMPETITIVE

LABOR MARKET

Purely competi tive labor market:

Many Firms

Numerous Qualified Workers

Wage TakerBehavior

Market Demand for Labor

Market Supply of Labor


7/3328 - 7

Copyright McGraw-Hill/Irwin, 2005

Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

End

Show

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
http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter28/interactive_graphs.html


8/3328 - 8

Copyright McGraw-Hill/Irwin, 2005

Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

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


9/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

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
http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter28/origin_of_the_idea.html


10/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


Model

Minimum Wage

Controversy

Wage Differentials

Pay For Performance

Key Terms

Previous

Slide

Next

Slide

End

Show

WageRate(d

ollars)

S

Quantity of Labor

MONOPSONISTICLABOR MARKET

I n monopsony

MRC lies above

the supply curve.


11/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


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

Qm


MRP = MRC

Qmuni ts oflabo r h ired


12/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


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.

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter28/interactive_graphs.html


13/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


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


Monopsonists maximize

prof i ts by hir ing a smaller

number of workers andthereby paying a less-than-

competi tive wage rate.


14/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


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


15/33


Labor, Wages, and

Earnings

General Level of

Wages

Real Wages and

Productivity

Purely Competitive

Labor Market

Monopsony Model


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



16/33


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



17/33


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



18/33


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


19/33


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


Qu

S1

...restrictive

membership

policies

S2


20/33


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


Qu

S1

...restrictive

membership

policies

...restricting

labor supply of

the economy as

a whole

S2


21/33


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


Qu

S1

...restrictive

membership

policies

...restricting

labor supply of

the economy as

a wholeoccupational

licensing

S2


22/33


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


23/33


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


24/33


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

WAGE INCREASESAND UNEMPLOYMENT

Union members receiveabout 15% higher wages

Negative impact on level of

employment

Negative unemployment effect

reduced by:Growth

Elasticity


25/33


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

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


26/33


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

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


27/33


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

MINIMUM WAGECONTROVERSY

Case AgainstMinimum Wage

Case ForMinimumWage

Evidence and

Conclusions


28/33


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

WAGE DIFFERENTIALS

Marginal Revenue

Productivity

Noncompeting Groups

Ability

Education and Training

Investment in Human

Capital
http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter28/origin_of_the_idea.html


29/33


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

WAGE DIFFERENTIALS

Compensating DifferencesNonmonetary Differences

Market ImperfectionsLack of Job InformationGeographical Immobility

Unions & GovernmentRestraints

Discrimination


30/33


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

PAY FOR PERFORMANCE

The Principal-Agent Problem

Incentive Pay Plan

Piece Rates

Commissions or Royalties

Bonuses, Stock Options, &

Profit Sharing

Efficiency Wages
http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter28/origin_of_the_idea.htmlhttp://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter28/origin_of_the_idea.html


31/33


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

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


32/33

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


33/33

28 33

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

ppt on wage determation

Documents