Blue collar vs. white collar workers
-Blue collar: professional people such as lawyers, physicians, dentists and teachers
-White collar: owners of small businesses, such as barbers, plumbers, and retailers who provide labor as they operate own business
Wage rate
price paid per unit of labor services, in this case an hour of work
Labor earnings
multiplying the number of hours worked by the hourly wage rate
Nominal wages
amount of money received per hour, day, or year
Real wages
the quantity of goods and services a worker can obtain with nominal wages; these wages reveal the "purchasing power" of nominal wages
What do average wages earned by workers depend on?
-gender
-race
-ethnic background
Where are wage rates the highest, in U.S. China or India?
U.S.
What is the reasoning behind such high real wages in U.S. and other industrially advanced economies?
the demand for labor in these countries is relatively large compared to the supply of labor
What are the reasons for such high productivity?
-plentiful capital
-access to abundant natural resources (U.S. endowed with arable land, mineral resources,and sources of energy for industry)
-advanced technology
-labor quality
-other factors (efficiency and flexibility of management, business environme
Real income (compensation) per worker can increase only at the same rate as what?
output per worker
Do real wages rise along with productivity in short or long spans?
long spans
Purely competitive labor market
-numerous firms compete with one another in hiring a specific type of labor
-each of many qualified workers with identical skills supplies that type of labor
-individual firms and individual workers are "wage takers" since neither can exert any control ov
How are industries defined?
according to the products they produce and NOT the resources they employ
How do we find the total/market labor demand curve for a particular labor service?
sum horizontally the labor demand curves (marginal revenue product curves) of the individual firms
How is the supply curve for labor slopes? What does this indicate?
upward slopes. Indicates that employers as a group must pay higher wage rates to obtain more workers
What do higher wages in a particular labor market do?
entice more workers to offer their labor services in that market (gets more people to work)
When the supply of labor faced by an individual firm is perfectly elastic (horizontal) what can the firm do?
hire as many of as few workers as it wants to at the market wage rate
How does the firm in a purely competitive labor market maximize its profit?
by hiring workers up to the point at which its wage rate equals MRP
Fringe benefits
paid vacations, health insurance, and pensions
What is the only way workers can get more fringe benefits?
by accepting lower take-home pay
Monopsony
a market structure in which there is only a single buyer
Labor market monopsony characteristics
-there is only a single buyer of a particular type of labor
-workers providing this labor have few employment options other than working for monopsony because they are geographically immobile or because finding alternative employment would have to acquire
Pure monopsony
such power is at its maximum because only a single employer hires labor in the labor market. Ex. silver-mining company in Idaho may be only source of employment!
What happens if a firm is large in relation to the size of the labor market?
it will have to pay a higher wage rate to attract labor away from other employment or from leisure
What if there is only one employer of a particular type of labor in a certain geographic area?
the labor supply curve for the firm and the total labor supply curve for the labor market are identical
Why does a monopsonist's supply curve go upward?
the firm must pay higher wage rates if it wants to attract and hire additional workers
What must a monopsonist do when it pays a higher wage to attract an additional worker?
pay that higher wage not only to the additional worker, but to all the workers it is currently employing at a lower wage! (uniform wage)
Because the monopsonist is the only employer in the labor market, what happens between MRC and wage rate?
MRC (marginal resource (labor) cost) exceeds wage rate
***SEE PAGE 337 CHART AND EXPLANATION FOR IT ON BOTTOM OF 336
Just like a monopolistic seller, a monopsonistic employer of resources finds it profitable to do what?
restrict employment in order to reduce wage rates below those that would occur under competitive conditions
Where is some evidence of monopsony power in diverse labor markets?
nurses (starting hospitals), pro athletes (drafts, low salaries for rookies), public school teachers, newspaper employees, and some building-trade workers
What is the most important goal of a union?
to raise wage rates
What does increase in demand for union labor create?
higher union wage along with more jobs
What is the main tool for increasing the demand for union-produced goods or services?
political lobbying (Ex. teachers' unions and associations have pushed for increased public spending on education)
How can unions increase the demand for their labor?
-increasing the demand for the goods or services they help produce
-altering the price of other inputs (Ex. unions would love an increase in minimum wages, even though workers for unions make substantially more than minimum wage)
-supporting policies that
How can unions boost wage rates?
by reducing the supply of labor
Craft unions
workers have adopted techniques to restrict number of workers in union. These members possess particular skill, such as carpenters, brick masons, or plumbers
Exclusive unionism
by excluding workers from unions and therefore from the labor supply, craft unions succeed in elevating wage rates
Occupational licensing
group of workers in given occupation pressure federal, state, or municipal government to pass a law that says that some occupational group (physicians, lawyers, etc.) can practice their trade only if they meet certain requirements
What is purpose of licensing?
to protect consumers from incompetent practitioners
What do licensing requirements often include?
residency requirement
Industrial unions
those of the automobile workers and steelworkers.
To break a strike, what can employers do for a union?
substitute unskilled or semiskilled nonunion workers for the unskilled or semiskilled union workers
Inclusive unionism
by organizing virtually all available workers in order to control the supply of labor, these unions may impose a higher wage rate (in graph, find point where MRC = MRP)
Bilateral monopoly
a single seller and a single buyer (combo of monopsony model and inclusive unionism model)
What is the outcome when monopsonistic employer seeks below-competitive equilibrium while union presses for above-competitive equilibrium?
outcome is "logically indeterminate" because the bilateral monopoly model does not explain that will happen at the bargaining table
What happens once management accepts competitive wage rate (middle one on y-axis)?
its incentive to restrict employment disappears, and it no longer can depress wage rates by restricting employment
Minimum wage
30-50% of the average wage paid to manufacturing workers
What is the purpose of a minimum wage?
to provide a "wage floor" that will help less-skilled workers earn enough income to escape poverty
What are two criticisms of minimum wage?
1) above-equilibrium minimum wage will cause employers to hire fewer workers
-it is "poorly targeted" to reduce household poverty
Labor turnover
the rate at which workers voluntarily quit (high minimum wage may reduce this)
Where will a minimum wage only cause unemployment in labor markets?
where the minimum wage is higher than the equilibrium wage
Wage differentials
difference between the wages received by one person from another
Marginal revenue productivity
the higher the demand is, the higher the wages/salaries (ex. professional athletes)
Noncompeting groups
workers where each one represents several occupations for which the members of a particular group qualify
Human capital
the personal stock of knowledge, know-how, and skills that enables a person to be productive and thus to earn income
Why is is that educated workers rise more rapidly than poorly educated workers?
employers provide more on-the-job training to the better-educated workers, boosting their marginal revenue productivity and therefore their earnings
What are the market imperfections that impede workers from moving from lower-paying jobs to higher-paying jobs?
-lack of job info
-geographic immobility
-unions and gov't restraints
-discrimination
Why is there a difference in pay between a physician and a construction worker?
there is a much greater labor supply for construction workers, and physicians generate considerable revenue because of their high productivity and willingness to help consumers via health care
Principal-agent problem
associated with possible differences in the interests of corporate stockholders (principals) and the executives (agents) they hire (do not agree on everything)
Incentive pay plan
ties worker compensation more closely to worker output or performance (Ex. piece rates, commissions and royalties, bonuses, stock options, and profit sharing, etc.)
Profit-sharing plans
allocate a percentage of a firm's profit to its employees
What does above-equilibrium wage do for firms?
-enables firm to attract higher-quality workers
-lifts worker morale
-lowers turnover, resulting in a more experienced workforce, greater worker productivity, and lower recruitment and training costs
AFL-CIO union examples
United Autoworkers, Communications Workers, and United Steelworkers
Where is unionization rate high?
government, transportation, telecommunications, construction, and manufacturing, teachers, production workers
Where is unionization rate low?
finance, agriculture, and retail trade, food workers, sales workers, managers
Who has the higher unionization rates?
-more men than women
-more blacks than whites
-asians and hispanics are same
What type of phenomenon is unionism in the U.S.?
urban
What are some factors that have reduced unionism in U.S.?
-employment shifting from manufactured goods (union is strong) and toward services (union is weak)
-consumer demand shifting toward manufactured goods and away from goods produced by union labor
-industry shifting from northeast and midwest to areas of so
Goal of collective bargaining
to establish a "work agreement" between firm and union
What is the focal point of most bargaining agreements?
wages (including fringe benefits) and hours
What are the arguments that unions use most frequently in demanding wage boosts?
-"what others are getting"
-employer's ability to pay, based on its profitability
-increases in the cost of living
-increases in labor productivity
Seniority
the basis for worker promotion and for layoff and recall
Grievance procedures
in labor contracts that resolve matters when a workers gets reassigned to a less pleasant job
Make-work" or "featherbedding" practices
unions engage in these practices to resist the introduction of output-increasing machinery and equipment. They often arise in periods of technological change
How may unions reduce efficiency?
by establishing work rules and practices that impede putting the most productive workers in particular jobs. Ex. under seniority, workers may be promoted for tenure, not their productivity