Chapter 28 Wage Determination
Productivity and Market Forces Determine Wage Rates
II. Competitive Model
V. Craft Unions vs. Inclusive Industrial Unions
VI. Bilateral Monopoly
VII. Minimum Wage with extensive readings
VIII. Wage Differentials with extensive readings
IX. Current Political Economy Controversies
Last Chapter Demand for Economic Resources
Next Chapter Rent, Interest and Profit
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Productivity and Market Forces Determine Wage Rates
E. Labor's Share is Getting Smaller
A. Many buyers and sellers, from a few to tens-of-thousands of workers and
a proportionate number of buyers (companies).
B. No single 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
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
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. Amazon.com monopsony is not OK Paul Krugman 1019/14
1. Some agree
2. Some disagree
E. 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.
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. Control the supply of workers hired
a. Require licenses and apprenticeships
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
C. Wagner Act (National Labor Relations Act ) of 1935
became known as the "Magna Charta" of labor because it increased
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. Set up the National Labor Relations Board to investigate/stop
unfair labor practices
D. Taft Hartley Act of 1947 decreased union power.
1. Outlawed a closed shop where companies must hire union members.
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. Outlawed Secondary boycotts or sympathy strike (companies
the employer does business with also feel a boycott)
E. Labor Day and the low-wage future is a 10 minute video on the
history of Labor Day and some current data 9/7/09
F. Lets Remember What Unions Have Done for America
has extensive information and links
G. National Review reports that 0.55 percent of the federal work force
were fired in 2011. That was 1/5 the separation rate for the private
sector. A firing offense can take 18 months to process so many
workers just get transferred. 6/7/13 The Week magazine.
Ida Tarbell and other investigative journalists were called Muckrakers. She exposed Standard Oil Trust. Working for McClure Magazine and other monthly magazines they help educated the public from 1890 to 1929 in what is known as the Progressive Era.
Books also help the education process.
V. Craft Unions vs. Inclusive
|2. Skilled workers were organized.||2. Unskilled workers were organized.|
3. High skill
requirements naturally limited supply and unions tried to
reinforce limited supply.
|3. Limited skills make limiting supply impractical|
4. Tried to shift supply
of workers to the left with licensing, apprenticeships,
child labor laws, etc. to increase wages.
4. Control supply of
workers and emphasized collective bargaining to
Have American CEO's Created an Exclusive Craft Union?
May, 2011 The Rise of the McWorker
Down half a point to 11.3% since 2011 because of public sector decrease,
In 1955the AFL and CIO merged into the AFL-CIO.
Unions: Good or Bad? from the Motley Fool
monopoly from Wiki
Support this site by shopping at amazon.com.
The Economist Magazine p58, 5/26/12
Editors Note: Work rules keep employment in Europe high
at the cost of less efficiency. German
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VII. Minimum Wage
A. A minimum wage is a price floor put on wages to stop
them from falling below some legislated level.
B. The result may be a surplus of workers (unemployment).
C. Studies conducted in the 1990's showed that increasing
the minimum wage did not increase unemployment
though the economic expansion of the period created a
shortage of workers.
D. Econ Con in 60 Sec Vid-Labor Market, Min Wage Review
E. "The Economic Debate over Minimum Wage Effects"
is from the blog Econbrowser.
F. Minimum Wage by State
G. What would happen if fast food workers got a big raises
8/2/13 Bloomberg's Business Week
H. What higher minimum wage does for workers/economy
I . Case study San-Jose Hiked minimum wage 4/14/14
The Economist Magazine 2/16/13
The Economist 11/24/12
Minimum Wage Material
6. Study Reduces Minimum Wage Fears
7. State buying Power of-Minimum Wage 8/14
8. Employment Elasticity toMinimum Wage 3/15
VIII. Wage Differentials
A. Wages are determined by marginal revenue product so entertainers
who sell the most tickets make the most money.
B. Tutor2u - wage differentials between occupations
C. Work requirements differ so many workers with different ability and
education form non-competing groups.
D Non monetary compensation, sometimes called psychic income,
differ so working in a white shirt air-conditioned office might pay less
them working outside in the heat or cold.
E. Performance Pay
1. Bonus, stock options, and profit sharing for corporate executives
and revenue producers
2. Piece Rate, commissions and royalties are common.
3. Negative side affect
a. product quality
b. aggressive, sometime illegal and unethical, sales technique
c. short run attitude at e the expense of others
F. Outside reading Pay-for-Performance Doesn’t Always Pay Off
H. NYT.com reported that 2014 WS bonuses of $28.5 were almost twice the
earnings of the 1.03 million full time workers earning the Federal minimum
wage. 3/27/15 The Week magazine.
The economic gain from investing in education is
1. Over the last 20 years, the need for above average college graduate
has increased from about 20% to about 23%.
2. There was a slight over supply until 1995 when a dramatic increase
in college graduates made the over supply substantial.
3. The mean household income peaked in 2000 and since, has dropped
4. The decrease is more substantial than it appears.
a. Household income is biased higher by young people delaying
children thus increasing the opportunity of two-income families.
b. The within cohort variability has been increasing as the better
skilled college graduates have been earning much more than
average and the college graduates with few usable skills earn
substantially less, little more than a high school graduate.