Chapter 28
Wage Determination

Lecture Notes

I. Productivity/Markets Determine Wages

II. Competitive Model

III. Monopsony

IV. Unions

V. Craft Unions vs. Industrial Unions

VI. Bilateral Monopoly

VII. Minimum Wage

VIII. Wage Differentials

IX. Worldwide Differences

X. Education Stuff

XI. Creative Destruction

For Visual Learners

9/24/22  Please link to and share.\

Political Economy Stuff

Wage Stagnation
Causes and Solutions

Lecture Notes

I. Productivity, Markets Determine Wages
     A. Introduction
        1. Wage determination is of interest because most
            people devote much of their time to earning activities.
        2. Wage earners include blue and white collar workers
            and professionals.
   B. Factors affecting labor productivity
      1. Labor Quality (health, education, etc.)
          a. Educating the Class of 2030
          b. Changing Education Paradigms Royal Society: encouragement of Arts, Manufactures and Commerce
      2. Quantity, quality of capital supporting labor
      3. Geekability the New Intelligence
      4. Management efficiency
      5. Business, social and political climate
      6. Cost and availability of natural resources

source

C. Wage determination models

Political Economy Stuff

Workers Get More than Advertised.


 

Middle Class Wages
1. Labor Force Analysis: Boomers, Mexicans, and Trucking

`12/29/21 Video

2. Krugman on the Need for Jobs Policies  

3. Worker wage inequality myth exposed    
  
 lack of skills, education not the problem

4. Labor's Share is Getting Smaller, but people work less.
5
. Middle Class Economics

II. Competitive Model


 
H. In Defense of Sweatshops

III. Monopsony


       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

G. Oligopsony a few buyers, often yield a similar result. 
     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. 


May, 2011 The > The evidence points to the latter. According to a recent analysis by the National Employment Law Project (NELP), the biggest growth in sector job creation in the past year occurred in positions in the low-wage retail, administrative, and food service sectors of the economy. While 23% of the jobs lost in the Great Recession that followed the economic meltdown of 2008 were “low-wage” (those paying $9-$13 an hour), 49% of new jobs added in the sluggish “recovery” are in those same low-wage industries. On the other end of the spectrum, 40% of the jobs lost paid high wages ($19-$31 an hour), while a mere 14% of new jobs pay similarly high wages. See  Welcome to the McJobs Recovery Andy Kroll, TomDispatch

 

 

Have American CEO's Created an Monopsony Seller?

The Stock Market Effect

Return to Quick Notes Economics  

  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. 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 apprenticeships, licenses
Open Markets Institute.
                     Chart: Axios Visuals
 
                   b. Restrict immigration and child labor
                 c. Encourage shorter workweek and
                     family leave programs
                 d. Keep jobs management wants to eliminate (featherbedding) 
                 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 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

      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. Secondary boycotts or sympathy strikes (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. Struggling To Get Ahead: The Age Demographics Of Weekly Earnings
      G. Books also help the education process.
          1. The Jungle exposure of health violations and unsanitary practices in the early
              20th century American meatpacking industry.
          2.
 The Octopus exposed government corruption
          3. 
The Bitter Cry of Children exposed the terrible child working conditions.
              Some tried night school after working ten hours learning read was difficult.
     H. Readings
         1. Janus and fair share fee
organizations financed attacks on unions
             trying to represent workers

         2. U.S. Strikes, Lockouts Remained Near Record Lows in 2010 2/8/11
         3. Is the Supreme Court Killing Unions 7/11/14
        4.
Most people work just hard enough not to get fired and get paid just enough money not to quit.
            George Carlin Read more at  George Carlin
         5. Lets Remember What Unions Have Done for America has extensive information and links
         6. Union movement misses big opportunity to halt its decline
Economist Magazine 2/22/14

  

Who Occupational Licensing
 Hurts the Most

Data: Open Markets Institute. Chart: Axios Visuals

Occupational Licensing Linked To Less Economic Mobility

     Labor Power is Down

 

V. Craft and Inclusive Union

      A. Craft Unions
          1. Organized in 1886 by Samual Gompers as  American Federation of Labor -AFL
              a. Each trade was autonomous
              b. Union was not political. 

          2. Skilled workers were organized.

          3. High skill requirements naturally limited supply and unions tried to reinforce limited supply.

          4. Tried to shift supply of workers to the left with licensing, apprenticeships, child labor
              laws, etc. to increase wages.

   B. Inclusive Industrial Union
       1. Congress of Industrial
         Organizations (CIO) was organized in 1936
          John L. Lewis who broke with the AFL because mass
          production workers need a their own organization. 
          See Decline and resurgence of the U S auto industry
Walter P. Reuther  Library

       2. Unskilled workers were organized.

       3. Limited skills make limiting supply impractical.

       4. Controlled  supply of workers and
          emphasized collective bargaining
          to increase wages.

 

 

 

Do Private Sector Unions Still Have a Future in the US The Washington Post By Brad Plumer, 6/13/13

 

Readings
The Intercept
 interviewed former EPI President Larry Mishel on the labor movement’s plans to shift the balance of power back to workers in 2018 and 2020. Mishel said the “Better Deal” package of reforms unveiled by congressional Democrats in 2017 includes some “seriously bold” ideas, including a ban on the permanent replacement of striking workers. | EPI’s Heidi Shierholz explained to Vice News why President Trump can’t claim that his tax cuts for corporations will create jobs. Corporations already have record-high levels of cash they could be investing in job creation. “You’re encouraging companies to hire workers based on incentives that they already have,” said Shierhols an extraordinarily inefficient way to create jobs.” | Trump is Taking Credit for a Thriving Economy He Had Nothing to do With »

A number of specific policy actions could help revitalize wage growth:

Eliminating non-compete contracts for low-wage workers, while also banning agreements between franchisees that prevent the hiring of each others’ employees.

Limiting the use and enforceability of non-compete contracts so that they provide mutual benefit to workers and employers.
Enhancing pay transparency to put workers and firms
 on a more level playing field.
Using enhanced Pell grants and student loan deferrals to encourage geographic mobility and career growth.
Better matching postsecondary education and training programs with skills that are highly valued in the labor market, thereby increasing early-career wages.
Leveraging fiscal and monetary policy to drive demand for labor (and improve wage outcomes) when there is slack in the economy.
 Modernizing labor market institutions
by restoring the real values of the minimum wage and overtime threshold, as well as protecting union rights.
Best fgives many a small raise every year. Source
See
Promising Policies Could Reduce Economic Hardship, Expand Opportunity for Struggling Workers

   VI. Bilateral monopoly from Wiki

 

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). See graph
          
          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. The Economist 11/24/12
         D.
Employment Elasticity to Minimum Wage

       See
     
 How Much Did The Minimum Wage Drive Real Wage Growth During The Late 2010s?

                 
           
Minimum-Wage IncreasesReverse Post-Recession Wage-Declines for Lowest Paid-Jobs

Minimum Wage in America: A Timeline

VIII. Wage Differentials

    A. Wages are determined by marginal revenue product so
            entertainers who sell the most tickets make the most money.
    B. 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, unethical sales technique
             c. short run attitude at e the expense of others
    F. Pay-for-Performance Doesn’t Always Pay
    G. NYT.com reported that 2014 WS bonuses were almost twice the earnings
            of the 1.03 million full-time workers earning the Federal minimum wage.
    H. Economic gain from investing in education is going down.
           1. Over the last 20 years, the need for above average college
               graduate has increased from about 22% to about 31%.
           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 almost 10%.
    4. The decrease is more substantial than it appears.
        a. Household income is biased higher by young people delaying children
            thus increasing opportunities 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.

  I. Politics Counts
 

More Women Following the Money

Smaller Raises-Part-Time Workers

Atlanta FED Wage-Growth-Tracker

Degree Holders Did a Little Better

IX.  Worldwide Differences
 

Comparing Payroll Taxes

Source

Europe Tries to Limit Socialism's
Unintended Consequences

Hours Worked Have Been Dropping

 

X. Education Stuff
     Too Many Graduates

Source: Investing in College

A Proposal for Protecting Low‑Income Workers from Monopsony and Collusion

Changing Education Paradigms from the Royal Society for Encouragement of Arts, Manufacturing,
Commerce
is a must watch 14 minute video which explores how our current educational system has
gone in an unproductive detour and stifles creativity.

Educational Ideas From Economists has more interesting thoughts.

Educating the Class of 2030

/Economics of a College Education

Business Book Mall sponsors http://www.textbooksfree.org/.

 

low wage jobs

Does this mean that MRP does not equal MRC.

 

Chart is from Bureau of Labor Statistic
 PDF (3.5M), page 15
Data are in United States dollars at current prices and
current purchasing power parity for the reference year.
Rank Country Median
income
Year[4]
1  Luxembourg 34,821 2010
2  Norway 32,820 2010
3  Switzerland 31,493 2009
4  United States 29,056 2010
5  Canada 28,914 2010
6  Austria 28,089 2010
7  Australia 27,946 2010
8  Denmark 26,744 2010
9  Netherlands 25,715 2010
10  Germany 25,569 2010
11  Finland 24,778 2010
12  Belgium 24,709 2010
13  Sweden 24,614 2010
14  Iceland 24,610 2010
15 France 24,221 2010
16  United Kingdom 24,047 2010
17  South Korea 23,994 2011
18 off  New Zealand 23,444 2009
19  Italy 21,894 2010
20  Ireland 21,804 2009
21  Japan 21,410 2009
22  Slovenia 20,385 2010
23  Spain 18,736 2010
24  Israel 16,957 2010
25  Greece 16,570 2010
26  Czech Republic 15,348 2010
27  Slovakia 14,473 2010
28  Portugal 14,064 2010
29  Poland 13,414 2010
30  Estonia 11,564 2010
31  Hungary 10,319 2009
32  Chile 9,577 2011
33  Turkey 7,944 2009
34  Mexico 5,132 2010

 

 

 

 

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.

 

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Chapter 28 Class Discussion Questions
Chapter 28 Homework Questions
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Table of Contents
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For Visual Learners

 

 

 

Wage Growth Has Been Steady

Corporate Profits are Volatile

         E. Competitive countries, to keep market share
and maintain profit, keep wages low.

Germany has a wage share system.
Hours go down to avoid unemployment.

The Economist Magazine  5/4/13 Please  Share!
 


Income Increased for Each Group
by About 20%
Winter 2018 edition 

 

CEO's Got Lots

 

      The War on Work—and How to End It
 

Unfortunately, policymakers seem intent on making the joblessness crisis worse. The past decade or so has seen a resurgent progressive focus on inequality—and little concern among progressives about the downsides of discouraging work. Advocates of a $15 minimum hourly wage, for example, don’t seem to mind, or believe, that such policies deter firms from hiring less skilled workers. The University of California–San Diego’s Jeffrey Clemens examined states where higher federal minimum wages raised the effective state-level minimum wage during the last decade. He found that the higher minimum “reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points,” which accounted for “43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate.”

The decision to prioritize equality over employment is particularly puzzling, given that social scientists have repeatedly found that unemployment is the greater evil. Economists Andrew Clark and Andrew Oswald have documented the huge drop in happiness associated with unemployment—about ten times larger than that associated with a reduction in earnings from the $50,000–$75,000 range to the $35,000–$50,000 bracket. One recent study estimated that unemployment leads to 45,000 suicides worldwide annually. Jobless husbands have a 50 percent higher divorce rate than employed husbands. The impact of lower income on suicide and divorce is much smaller. The negative effects of unemployment are magnified because it so often becomes a semi permanent state.

Time-use studies help us understand why the unemployed are so miserable. Jobless men don’t do a lot more socializing; they don’t spend much more time with their kids. They do spend an extra 100 minutes daily watching television, and they sleep more. The jobless also are more likely to use illegal drugs. While fewer than 10 percent of full-time workers have used an illegal substance in any given week, 18 percent of the unemployed have done drugs in the last seven days, according to a 2013 study by Alejandro Badel and Brian Greaney.

Joblessness and disability are also particularly associated with America’s deadly Opioid epidemic. David Cutler and I examined the rise in Opioid deaths between 1992 and 2012. The strongest correlate of those deaths is the share of the population on disability. That connection suggests a combination of the direct influence of being disabled, which generates a demand for painkillers; the availability of the drugs through the health-care system; and the psychological misery of having no economic future.

Increasing the benefits received by nonemployed persons may make their lives easier in a material sense but won’t help reattach them to the labor force. It won’t give them the sense of pride that comes from economic independence. It won’t give them the reassuring social interactions that come from workplace relationships. When societies sacrifice employment for a notion of income equality, they make the wrong choice.

Politicians, when they do focus on long-term unemployment, too often advance poorly targeted solutions, such as faster growth, more infrastructure investment, and less trade. More robust GDP growth is always a worthy aim, but it seems unlikely to get the chronically jobless back to work. The booms of the 1990s and early 2000s never came close to restoring the high employment rates last seen in the 1970s. Between 1976 and 2015, Nevada’s GDP grew the most and Michigan’s GDP grew the least among American states. Yet the two states had almost identical rises in the share of jobless prime-age men.

Infrastructure spending similarly seems poorly targeted to ease the problem. Contemporary infrastructure projects rely on skilled workers, typically with wages exceeding $25 per hour; most of today’s jobless lack such skills. Further, the current employment in highway, street, and bridge construction in the U.S. is only 316,000. Even if this number rose by 50 percent, it would still mean only a small reduction in the millions of jobless Americans. And the nation needs infrastructure most in areas with the highest population density; joblessness is most common outside metropolitan America. (See “If You Build It . . .,” Summer 2016.)

Finally, while it’s possible that the rise of American joblessness would have been slower if the U.S. had weaker trade ties to lower-wage countries like Mexico and China, American manufacturers have already adapted to a globalized world by mechanizing and outsourcing. We have little reason to be confident that restrictions on trade would bring the old jobs back. Trade wars would have an economic price, too. American exporters would cut back hiring. The cost of imported manufactured goods would rise, and U.S. consumers would pay more, in exchange for—at best—uncertain employment gains.

The techno-futurist narrative holds that machines will displace most workers, eventually. Social peace will be maintained only if the armies of the jobless are kept quiet with generous universal-income payments. This vision recalls John Maynard Keynes’s 1930 essay “Economic Possibilities for Our Grandchildren,” which predicts a future world of leisure, in which his grandchildren would be able to satisfy their basic needs with a few hours of labor and then spend the rest of their waking hours edifying themselves with culture and fun.

But for many of us, technological progress has led to longer work hours, not playtime. Entrepreneurs conjured more products that generated more earnings. Almost no Americans today would be happy with the lifestyle of their ancestors in 1930. For many, work also became not only more remunerative but more interesting. No Pennsylvania miner was likely to show up for extra hours (without extra pay) voluntarily. Google employees do it all the time.

 

 

Joblessness is not foreordained, because entrepreneurs can always dream up new ways of making labor productive. Ten years ago, millions of Americans wanted inexpensive car service. Uber showed how underemployed workers could earn something providing that service. Prosperous, time-short Americans are desperate for a host of other services—they want not only drivers but also cooks for their dinners and nurses for their elderly parents and much more. There is no shortage of demand for the right kinds of labor, and entrepreneurial insight could multiply the number of new tasks that could be performed by the currently out-of-work. Yet over the last 30 years, entrepreneurial talent has focused far more on delivering new tools for the skilled than on employment for the unlucky. Whereas Henry Ford employed hundreds of thousands of Americans without college degrees, Mark Zuckerberg primarily hires highly educated programmers.

Unfortunately, policymakers seem intent on making the joblessness crisis worse.

Little concern among progressives about the downsides of discouraging work.

Jeffrey Clemens increase state-level minimum wage during the last decade.
 “reduced employment among individuals ages 16 to 30 with less than
a high school education by 5.6 percentage points,”  which accounted for
“43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate.”

Graphs by Alberto Mena

 

 

 

 

 

"huge drop in happiness associated with unemployment—about ten times larger than that associated with a reduction in earnings from the $50,000–$75,000 range to the $35,000–$50,000 bracket. One recent study estimated that unemployment leads to 45,000 suicides worldwide annually. Jobless husbands have a 50 percent higher divorce rate than employed husbands. The impact of lower income on suicide and divorce is much smaller. The negative effects of unemployment are magnified because it so often becomes a semi permanent state."

Increasing the benefits received by nonemployed persons may make their lives easier in a material sense but won’t help reattach them to the labor force Joblessness and disability are also particularly associated with America’s deadly Opioid epidemic.

 

Data are in United States dollars at current prices and current purchasing power parity for the reference year.
Rank Country Median
income
Year[4]
1  Luxembourg 34,821 2010
2  Norway 32,820 2010
3  Switzerland 31,493 2009
4  United States 29,056 2010
5  Canada 28,914 2010
6  Austria 28,089 2010
7  Australia 27,946 2010
8  Denmark 26,744 2010
9  Netherlands 25,715 2010
10  Germany 25,569 2010
11  Finland 24,778 2010
12  Belgium 24,709 2010
13  Sweden 24,614 2010
14  Iceland 24,610 2010
15  France 24,221 2010
16  United Kingdom 24,047 2010
17  South Korea 23,994 2011
18  New Zealand 23,444 2009
19  Italy 21,894 2010
20  Ireland 21,804 2009
21  Japan 21,410 2009
22  Slovenia 20,385 2010
23  Spain 18,736 2010
24  Israel 16,957 2010
25  Greece 16,570 2010
26  Czech Republic 15,348 2010
27  Slovakia 14,473 2010
28  Portugal 14,064 2010
29  Poland 13,414 2010
30  Estonia 11,564 2010
31  Hungary 10,319 2009
32  Chile 9,577 2011
33  Turkey 7,944 2009
34  Mexico 5,132 2010

 

Chart15

From The Story of the American Recovery in 15 charts 
5/8/14 The Washington Post

 

 

Power to the People

 

 

Minimum Wage Review  video
"The Economic Debate over Minimum
Wage Effects" 
Minimum Wage by State
Case study San-Jose Hiked Minimum Wage 4/14/14
Living wage calculator based on typical expenses in specific locations from MIT. Source
Purchasing Power of Minimum Wage
What happens if fast food workers got a big raises Bloomberg's Business Week 2/8/13
      1. published a study found that a modest 19% increase in the minimum wage did not reduce employment.
      2. Since then, study after study has found similar results.
      3. Should We ‘Fight For $15’? Why Not $20? Or $12?

Minimum wage in America:
How many people are earning $7.25 an hour?

Some Think Our Flat World
 Keeps US Wages Down

 

Destination Unknown
Large increases in the minimum wage could have severe long-term effects   7/25/15

 

Increasing Minimum Wages to $15
he Few Job Losses Were Temporar

                

 

 

 

 

 

Appropriate Analysis?

Income growth and its distribution from Eisenhower to Obama: The growing importance of in-kind transfers.

Editorial: Someone has to take responsibility for keeping politicians,
and professional for abusing economic measures for personal gains.

Fake News Warning 3 Wages Stagnate

wage-growth

Source: economic populist org has much more data

 


      

 

New York police violently attacking unemployed workers in 
Tompkins Square Park
, 1874

 

 

From Page 60 of the April 24, 2010 edition of
 The Economists. For the complete article read 
You haven't seen nothing yet. 

 

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.