AGENDA Tues 12/1LO1 13-1. QOD #37: Work with Benefits Workers are compensated by firms with...
Transcript of AGENDA Tues 12/1LO1 13-1. QOD #37: Work with Benefits Workers are compensated by firms with...
AGENDA Tues 12/1
• QOD #37: Work with benefits
• Wage Determination
• Monopsony
• Unions (Effect of Unions wksht)
• HW: Read pp 273-282 Q #7,9
LO1 13-1
QOD #37: Work with Benefits
Workers are compensated by firms with “benefits” in addition to wages
and salaries. The most prominent benefit offered by many firms is health
insurance. Suppose that in 2000, workers at one steel plant were paid
$20 per hour and in addition received health benefits at the rate of $4
per hour. Also suppose that by 2010 workers at that plant were paid $21
per hour but received $9 in health insurance benefits.
a. By what percentage did total compensation (wages plus benefits) change at
this plant from 2000 to 2010? What was the approximate average annual
percentage change in total compensation?
b. By what percentage did wages change at this plant from 2000 to 2010?
What was the approximate average annual percentage change in wages?
c. If workers value a dollar of health benefits as much as they value a dollar of
wages, by what total percentage will they feel that their incomes have risen
over this time period? What if they only consider wages when calculating
their incomes?
d. Is it possible for workers to feel as though their wages are stagnating even if
total compensation is rising
10-2
QOD #37: Work with Benefits a. By what percentage did total compensation (wages plus benefits) change at
this plant from 2000 to 2010? What was the approximate average annual
percentage change in total compensation?
a. Compensation increased by 25%. The average annual percentage change was 2.5%.
b. By what percentage did wages change at this plant from 2000 to 2010?
What was the approximate average annual percentage change in wages?
a. Wages increased by 5%. The average annual percentage change was 0.5%.
c. If workers value a dollar of health benefits as much as they value a dollar of
wages, by what total percentage will they feel that their incomes have risen
over this time period? What if they only consider wages when calculating
their incomes?
a. If they consider all benefits together, they feel their incomes increased by 25%. If they only
consider wages, they feel their incomes increased 5%.
d. Is it possible for workers to feel as though their wages are stagnating even if
total compensation is rising?
a. Yes, workers may feel their wages are stagnating even when total compensation is rising, if
they do not consider the value of benefits as part of their wages
10-3
Labor, Wages, and Earnings
• Wages
• Price paid for labor
• Direct pay plus fringe benefits
• Wage rate
• Nominal wage
• Real wage-purchasing power
• General level of wages-see p.267
LO1 13-4
Role of Productivity
• Labor demand depends on
productivity
• U.S. labor is highly productive
• Plentiful capital
• Access to abundant natural
resources
• Advanced technology
• Labor quality
LO1 13-5
Real Wages and Productivity
• Long-run trend of average real
wages in the U.S.
Real
Wag
e R
ate
(D
ollars
)
Quantity of Labor
D1900
S1900
D1950
D2000 D2020
S1950
S2000
S2020
LO1 13-6
Real Wages and Productivity
LO1 13-7
Competitive Labor Market
• Market demand for labor
• Sum of firm demand
• Example: carpenters
• Market supply for labor
• Upward sloping
• Competition among industries
• Labor market equilibrium
• MRP = MRC rule
LO2 13-8
($10) WC
($10) WC
Wa
ge
Ra
te (
Do
lla
rs)
Labor Market
Quantity of Labor
Wa
ge
Ra
te (
Do
lla
rs)
Individual Firm
Quantity of Labor
QC
(1000)
0 0
d=mrp
qC
(5)
s=MRC
Competitive Labor Market
LO2
D=MRP (∑ mrp’s)
S
e b
a
c
13-9
Monopsony Model
• Employer has buying power
• Characteristics
• Single buyer
• Labor immobile
• Firm “wage maker”
• Firm labor supply is upward sloping
• MRC higher than wage rate
• Equilibrium
LO3 13-10
• Examples of monopsony power-see p.272
Monopsony Model
Wa
ge
Ra
te (
Do
lla
rs)
Quantity of Labor
0
S
MRP
MRC
c
b
a Wc
Wm
Qm Qc
LO3 13-11
Monopsony Power
• Maximize profit by hiring smaller number of workers
• Examples of monopsony power-rare in the U.S.
• Nurses-skills not easily transferrable-small town?
• Professional Athletes-player drafts-teams aren’t
competing to hire.
• Three union models
LO3 13-12
Demand Enhancement Model
• Union model
• Increase product demand
• Alter price of other inputs
Wa
ge
Ra
te (
Do
lla
rs)
Quantity of Labor
Wu
Qc Qu
Wc
D1
D2
S
Increase
In Demand
LO4 13-13
Wa
ge
Ra
te (
Do
lla
rs)
Quantity of Labor
restrictive membership,
occupational licensing (plumbers, doctors)
D
S1
Qc
Wc
S2
Wu
Qu
Decrease
In Supply
Craft Union Model
LO4 13-14
Industrial Union Model
• Inclusive unionism-ALL WORKERS
• Auto and steel workers
Wa
ge
Ra
te (
Do
lla
rs)
Quantity of Labor
D
S
Qc
Wc
Wu
Qu Qe
a b e
LO4 13-15
Bilateral Monopoly Model
• Monopsony and inclusive unionism
• Single buyer and seller
• Not uncommon
• Indeterminate outcome
• Desirability
LO4 13-16
Bilateral Monopoly Model
LO4
Wa
ge
Ra
te (
Do
lla
rs)
Quantity of Labor
D=MRP
S
Qc
Wc
Wu
Qu=Qm
MRC
Wm
a
13-17
The Minimum Wage Controversy
• Case against minimum wage
• Case for minimum wage
• State and locally set rates
• Evidence and conclusions
LO5 13-18
• Differences across occupations
• What explains wage differentials?
• Marginal revenue productivity
• Noncompeting groups
• Ability
• Education and training
• Compensating differences
LO5
Wage Differentials
13-19
Wage Differentials
LO5 13-20
Wage Differentials
• Workers prevented from moving to
higher paying jobs
• Market imperfections
• Lack of job information
• Geographic immobility
• Unions and government restraints
• Discrimination
LO5 13-21
Pay for Performance
• The principal-agent problem-shirking v. not shirking (utility)
• Incentive pay plan
• Piece rates
• Commissions or royalties
• Bonuses, stock options, and profit sharing
• Efficiency wages
• Negative side-effects
LO6 13-22