copyright 2011the mcgraw-hill companies 10-1 labour wages and earnings real wages and productivity...
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Copyright 2011The McGraw-Hill Companies10-1
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
10WageDetermination
Copyright 2011The McGraw-Hill Companies10-2
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Chapter Objectives• How Wage Rates and Employment
Levels are Determined in Competitive Labour Markets
• How Monopsony Can Reduce Wages Below Competitive Levels
• How Unions Can Increase Wage Rates
• Minimum wages controversy• The Major Causes of Wage
Differentials• The Types, Benefits, and Costs of
“Pay-for-Performance” Plans
Copyright 2011The McGraw-Hill Companies10-3
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Labour Wages and Earnings• Wage Rate• Nominal Wage• Real Wage• General Level of Wages• Role of Productivity
–Plentiful Capital–Access to Abundant Natural
Resources–Advanced Technology–Labour Quality–Other Factors
Copyright 2011The McGraw-Hill Companies10-4
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Purely Competitive Labour Market
• Market Demand for Labour
• Market Supply for Labour
• Labour Market Equilibrium
• MRP = MRC Rule
Graphically…
Copyright 2011The McGraw-Hill Companies10-5
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Purely Competitive Labour Market
Wag
e R
ate
(ran
d)
Wag
e R
ate
(ran
d)
(R10)WC
(R10)WC
Labour Market Individual Firm
Quantity of labour Quantity of labour
QC
(1000)
0 0
D=MRP(∑ mrps)
d=mrp
qC
(5)
s=MRC
S
e
c
b
a
10.1
Copyright 2011The McGraw-Hill Companies10-6
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Monopsony Model
• Monopsony• Upward-Sloping Labour
Supply to Firm• MRC Higher Than the
Wage Rate• Equilibrium Wage and
EmploymentGraphically…
10.1
10.2
Copyright 2011The McGraw-Hill Companies10-7
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Monopsony Model
Wag
e R
ate
(ran
d)
Quantity of labour
0
S
MRP
MRC
c
b
aWc
Wm
Qm Qc
Examples of Monopsony Power
Monopsonistic Labour Market
10.1
Copyright 2011The McGraw-Hill Companies10-8
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Demand Enhancement
Model–Increase Product Demand–Increase Productivity–Alter the Price of Other
Inputs
Wag
e R
ate
(ran
d)
Quantity of labour
Wu
Qc Qu
Wc
D1
D2
S
IncreaseIn Demand
Copyright 2011The McGraw-Hill Companies10-9
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Exclusive or Craft Union
Model–Restricted Immigration–Reduced Child Labour–Encouraged Compulsory
Retirement–Shorter Hour Workweek–Exclusive Unionism–Occupational Licensing
Graphically…
Copyright 2011The McGraw-Hill Companies10-10
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Exclusive or Craft Union
ModelW
age
Rat
e (r
and
)
Quantity of labour
D
S1
Qc
Wc
S2
Wu
Qu
DecreaseIn Supply
Copyright 2011The McGraw-Hill Companies10-11
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Inclusive or Industrial Union
Model–Inclusive Unionism
Wag
e R
ate
(ran
d)
Quantity of Labour
D
S
Qc
Wc
Wu
Qu Qe
a be
Copyright 2011The McGraw-Hill Companies10-12
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Three Union Models• Wage Increases and
Unemployment• Reduced Employment
Levels Corrected by:–Growth–Elasticity
Copyright 2011The McGraw-Hill Companies10-13
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Bilateral Monopoly• Indeterminate Outcome• Desirability of Bilateral
MonopolyW
age
Rat
e (r
and
)
Quantity of Labour
D=MRP
S
Qc
Wc
Wu
Qu=Qm
MRC
Wm
a
Copyright 2011The McGraw-Hill Companies10-14
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Minimum Wage• Case Against the
Minimum Wage• Case For the Minimum
Wage• State and Locally Set
Rates
Copyright 2011The McGraw-Hill Companies10-15
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Wage DifferentialsMedian Salary by Certification
South Africa 2009
Chartered AccountantBusiness CertificateNetwork Service TechnicianEngineerProject ManagerA+ Service technicianB Com
R425 489191 394137 436391 337308 514143 299227 453
Source: www.paysacle.com
Occupation Annual Average Salary
Copyright 2011The McGraw-Hill Companies10-16
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Wage Differentials• Marginal Revenue
Productivity• Noncompeting Groups
–Ability–Education and Training
• Human Capital
• Compensating Differences
10.2
Copyright 2011The McGraw-Hill Companies10-17
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Wage Differentials• Marginal Revenue• Market Imperfections
–Lack of Job Information
–Geographic Immobility–Unions and Government Restraints
–Discrimination
Copyright 2011The McGraw-Hill Companies10-18
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Pay for Performance• Incentive Pay Plan• Piece Rates• Commissions or Royalties• Bonuses, Stock Options,
and Profit Sharing• Efficiency Wages• Negative Side-Effects of
Pay for Performance10.3
Copyright 2011The McGraw-Hill Companies10-19
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Are Chief Executive Officers (CEOs) Overpaid?
• Current CEO Salaries are High Relative to Domestic or Foreign Firms
• Several Possible Reasons• Marginal Productivity Impact by Good
Decisions• Top Salaries Like “Prize” Goals for all
to Have as a Goal Impacting Many Jobs
• High Salary Bias by Board Members Due to their Own Previous Performances
• Some Argue High Salaries are Unjustified and are Unfair to Stockholders
Last
Word
Copyright 2011The McGraw-Hill Companies10-20
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
Key Terms• wage rate
• nominal wage
• real wage
• purely competitive labour market
• monopsony
• exclusive unionism
• occupational licensing
• inclusive unionism
• bilateral monopoly
• minimum wage
• wage differentials
• marginal revenue productivity
• noncompeting groups
• human capital
• compensating differences
• incentive pay plan
Copyright 2011The McGraw-Hill Companies10-21
Labour Wages and EarningsReal Wages and ProductivityPurely Competitive labour MarketMonopsony ModelThree Union ModelsBilateral MonopolyMinimum WageWage DifferentialsPay for PerformanceLast Word
Key Terms
End Show
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Income, Inequalityand Poverty