Chapter 28  Wage Determination 
   One-Page Quick Review-Chapter 28 may help with exams.   Updated 9/4/17    

I. Labor Productivity and Market Forces Determine Wages

II. Competitive Model
III. Monopsony
IV. Unions
V. Minimum Wage

VI. Sundry Union Stuff

Appendix 1 A Brief History of American Unions
Appendix 2 Effect of Education on Wages
Neil Howe Explains Banion Affects Investing in a Trump Market 43 minute video

I. Labor Productivity and Market Forces Determine Wages
    A. Introduction 
      1. Wage determination is of interest because most people
            devote much of their time to wage-earning activities.
        2. Wage earners include both blue and white collar workers
             and professionals.
    B. Factors affecting labor productivity
         1. Quality (health, education, etc.) of the work force.
             a. Educating the Class of 2034
             b. Changing Education Paradigms from the Royal Society
                 for the encouragement of Arts, Manufactures and
         2. Quantity and quality of capital supporting labor
         3. Use of technology Geekability the New Intelligence
         4. Management efficiency
         5. Business, social and political climate
         6. Cost and availability of natural resources
     C. Wage determination models
         1. Competitive model: many buyers and sellers acting 
             independently such as the market for unskilled workers
         2. Monopoly power models
             a. Monopsony model: one buyer, many sellers
                 such as the one-factory towns of rural America
             b. Union models: one seller of labor
            1) Exclusive craft model: electrical workers
                 2) Inclusive industrial model: auto workers
             c. Bi-lateral monopoly: one buyer and one seller which
                 occurs when unionized workers such as major league
                 baseball players negotiate with one buyer such as major
                 league baseball.
     D. Middle Class Wages
         1. Krugman on the Need for Jobs Policies
         2. Worker Wage Inequality Myth Exposed a lack of skills
             education is not the problem
         3. Union Power and Inequality
         4. Labor Participation And Household Income

Review worker quality, management, technology
Editor's Note:
US corporate governance is a profit based bonus system so much is gained by lowering factor costs (wages, materials..)  when price pressure increase.  The German corporate governance system includes worker representation so wages are to some degree sheltered from price pressures. The US corporate sector recovered faster from the Great Recession than that of Germany while German workers suffered smaller wage losses than US workers.


F. Labor's Share has Gotten Smaller

G. U.S. Outperforms G.B. Productivity/ Wages Race source


H. Wage Growth For All Are Coming Back

II. Competitive Model
  A. Many buyers and sellers, from a few to tens-of-thousands of 
         workers and a proportionate number of buyers (companies).
     B. No ingle company has high enough demand
         to affect wages (price).
     C. Workers (supply) act independently.
     D. Industry supply is up sloping as companies must 
         pay higher wages to induce more people to work.
     E. Marginal resource cost (MRC) is the change in total costs
          which results from hiring one more unit of resource.
     F. For a firm buying labor in a competitive market, supply is
          equal to marginal resource cost (MRC) because the firm
          may buy all the workers it desires at the rate set by industry
          supply and demand.
     G. Worker skills and company needs are very similar.
          An example would be unskilled workers seeking menial work.
    H. In Defense of Sweatshops
    I. Review
many independent buyers and
    sellers with up sloping supply curve

III. Monopsony
 A. One buyer interacting with many independently sellers 
        B. Firms maximize profits by equating marginal resource cost
            (the cost of hiring an additional worker) 
             with marginal revenue product (the revenue generated by 
             the use of an additional worker). 
             1. MRC will be above the supply line as wages must be 
                 increased to entice more people to work for a firm. 
             2. The logic here is similar to that of the marginal revenue
                 curve being below the demand curve.
        C. A single-payer universal health care system, in which
             a government is the only "buyer" of health care services,
             is an example of a monopsony. America's defense
             department is another example.
        D. Economic analysis
             1. Pure competition results in more workers being hired 
                 at a higher wage rate 
             2. WM < WPC and QM < QPC  

        E. Monopsony Model from Wiki
          F. Monopsony Model
          G. Readings
               1. monopsony is not OK Paul Krugman
                   a. Some agree
                   b. Some disagree
               2. Monopsony Takes Center Stage - Pro-Market 1/8/17
               3. What monopsony power in the labor market looks like   

     H. Oligopsony a few buyers, often yields similar results. American
          tobacco growers face an Oligopsony of cigarette makers, where
          three companies (Altria, Brown & Williamson, and Lorillard buy
          almost 90% of all tobacco grown in the US. 

    Question 1: Does  Social Median increase the monopsony power of
                         unrelated buyers of labor especially in smaller markets.
                     2. Will workers use social media to unite and increase their wages.


    Review one buyer, independent sellers, lower wages




Image result for Competitive labor markets


A. C. Lawrence Leather Co. a factory town circa 1910.[1].[2].

Peabody, Massachusetts 

IV. Unions  
    A. Introduction
          1. A union is an organization of workers selling their
              services collectively.
          2. Unions have many goals.
               a. Primary goal of higher income is becoming less important.
              b. Recent emphasis has been on employment security.
      B. There are many methods of achieving higher wages.
          1. Increase demand (MRPL) for labor
             a. Increase product demand   
                1) Advertising the union label
                2) Sponsoring trade restrictions such as tariffs and quotas
             b. Increase the productivity of workers
                1) Encourage cooperation with labor-management committees 
                2. Negotiate worker training and education programs
         2. Exclusive Craft Unions Control the supply of workers hired
             a. Require apprenticeships, licenses   
             b. Restrict immigration and child labor
             c. Encourage shorter workweek and family leave programs
             d. Keep unneeded jobs management wants to eliminate
             e. Require closed shops which limit hiring to union members
             f. Require union shops where new workers to join after a set period
             g. Against open shops where all may work, joining union is voluntary. 

           3. Bilateral Monopoly Monopsony vs. union (monopoly) 
a. Could the net result be close to that of a competitive market? 
              b. The answer depends upon negotiation results. 
              c. If bargaining power is split equally, wages paid and quantity
                  hired could be similar to that of pure competition but below the
                  union rate and above the monopoly rate.
Bilateral monopoly from Wiki
     e. THEODORE ROOSEVELT took on the corporate monopoly
                  trusts that control railroad rates and routes and thus destroyed
                  small towns and farms.


     C. Wagner Act National Labor Relations
         Act of 1935 became known as the "Magna Charta" of labor
         because it increased union power.
        1. It made company-sponsored unions illegal, stopped company 
            interference with unionizing activity (strikes), prohibited 
            discrimination against union members, and required
            companies to bargain in good faith. 
        2. National Labor Relations Board set up to 
            investigate/stop unfair labor practices 

V. Minimum Wage
     A. Increasing the Minimum Wage?
         1. The Case for a Higher Minimum Wage
             Patience Kabwasa, Colorado Springs Independent
         2. Target’s Pay Raise Is Proof that ‘Fight for $15’ Is Unnecessary
Michael Saltsman, Forbes
        3. The $15 Minimum Wage Crowd Tries a Bait and Switch
    David Neumark, Wall Street Journal     

  B. People Working Fewer Hours 


Source Democracy Journal | A Journal of Ideas


Child Labor Laws Begin in England

The 1930's Factory Acts "...forbade the employment of children under nine, limited the employment of children under age 13 to nine hours a day and 48 hours a week, and that of children under 18 to 12 hours a day and 69 hours a week. The act also forbade night work for children by restricting the time they could work to the period from 5:30 A.M. to 8:30 P., and required children under 13 to attend school for two hours a day.

The U.S. began to catch up with the 1938 Fair Labor Standards Act

D. Taft Hartley Act  of 1947 decreased union power.
         1. Outlawed a  closed shop where companies must hire union
         2. Allowed state right-to-work-laws make union shops requiring
             workers eventual become union members, illegal in 21
             states. (Right to Work States)
         3. Outlawed Featherbedding  (keeping positions even though 
             there is no need, i.e. firemen on a electric train) 
         4. Secondary boycotts or sympathy strikes where companies
          the employer does business with also feel a boycott)   
    E. Unemployment Risk and Unions 11/16

F. Review: Increase demand for product made and
        restrict supply of workers


VI. Sundry Union Stuff

Labor Day and the low-wage future is a 10 min video

Labor Day   

AFL to-dismiss-dozens-of-its staff 2/28/17


Productivity is not the cause of stagnate US and German wages
The Economist Magazine  5/4/13

Do Private Sector Unions Still Have a Future in the US
The Washington Post By Brad Plumer,

Union movement misses big opportunity to halt its decline
Economist Magazine 2/22/14


Workers of the World Unit



Infographic: The State Of The Unions | Statista


From Page 60 of the April 24, 2010 edition of The Economists. 

For the complete article read 
You haven't seen nothing yet


Wages are losing the battle with profits

States with the largest declines in collective bargaining have had slower pay growth: Median hourly compensation growth and change in state collective bargaining coverage, 1979–2012

Public vs. Private U.S. Compensation

Sources Congressional Budget Office

Mother Jones  The Economist