Ch-19 earnings.ppt

7/25/2019 Ch-19 earnings.ppt

1/34

Copyright2004 South-Western

1919Earnings andDiscrimination


2/34

Copyright 2004 South-Western

Earnings and Discrimination

Differences in Earnings in the United States

Today

The typical physician earns about $200,000 a year.

The typical police officer earns about $50,000 ayear.

The typical far !or"er earns about $20,000 a year.


3/34


Earnings and Discrimination

#hat causes earnings to ary so uch%

#ages are goerned by labor supply and labor

deand.

&abor deand reflects the arginal productiity oflabor.

'n e(uilibriu, each !or"er is paid the alue of his

or her arginal contribution to the econoy)sproduction of goods and serices.


4/34


SOME DETERMINANTS OFEQUILIBRIUM WAGES

*opensating differentials

+uan capital

bility, effort, and chance

Signaling

The superstar phenoenon


5/34


Compnsating Di!!rntia"s

Compensating differential refers to a difference

in !ages that arises fro nononetary

characteristicsof different -obs.

*oal iners are paid ore than others !ith siilarleels of education.

ight shift !or"ers are paid ore than day shift

!or"ers. /rofessors are paid less than la!yers and doctors.


6/34


#$man Capita"

Human capital is the accuulation of

inestents in people, such as education and

onthe-ob training.

The ost iportant type of huan capital iseducation.


7/34


#$man Capita"

Education represents an e1penditure of

resources at one point in tie to raise

productiity in the future.

y the year 2000, a an !ith a college degreeearned ore than 34 percent ore than !ithout

one. #oen sho!ed a 0 percent increase in

earnings due to a college degree.


8/34

Ta%" & A'rag Ann$a" Earnings%( Ed$cationa" Attainmnt



9/34Copyright 2004 South-Western

A%i"it() E!!ort) and C*anc

#hy has the gap in earnings bet!een s"illed

and uns"illed !or"ers risen in recent years%

'nternational trade has altered the relatie deand

for s"illed and uns"illed labor. *hanges in technology hae altered the relatie

deand for s"illed and uns"illed labor.



A%i"it() E!!ort) and C*anc

atural ability is iportant for !or"ers in all

occupations.

6any personal characteristics deterine ho!

productie !or"ers are and, therefore, play arole in deterining the !ages they earn.



An A"trnati' +i, o! Ed$cation- Signa"ing

7irs use educational attainent as a !ay of

sorting bet!een highability and lo!ability

!or"ers.

't is rational for firs to interpret a college degreeas a signal of ability.



T* S$prstar .*nomnon

Superstars arise in ar"ets that e1hibit the

follo!ing characteristics8

Eery custoer in the ar"et !ants to en-oy the

good supplied by the best producer. The good is produced !ith a technology that a"es

it possible for the best producer to supply eery

custoer at a lo! cost.



A%o'/E0$i"i%ri$m Wags- Minim$m/WagLa,s) Unions) and E!!icinc( Wags

#hy are soe !or"ers) !ages set aboe theleel that brings supply and deand into

e(uilibriu%

6iniu!age la!s

6ar"et po!er of labor unions

Efficiency !ages




Unions

union is a !or"er association that bargains !ith

eployers oer !ages and !or"ing conditions.

Stri"e strike refers to the organi9ed !ithdra!al of labor

fro a fir by a union.




Efficiency #ages

The theory of efficiency wages holds that a fir can

find it profitable to pay high !ages because doing

so increases the productiity of its !or"ers. +igh!ages ay8

reduce !or"er turnoer.

increase !or"er effort.

raise the (uality of !or"ers that apply for -obs at the

fir.



T#E ECONOMICS OFDISCRIMINATION

Discrimination occurs !hen the ar"etplaceoffers different opportunities to siilar

indiiduals !ho differ only by race, ethnic

group, se1, age, or other personalcharacteristics.



T#E ECONOMICS OFDISCRIMINATION

lthough discriination is an eotionallycharged topic, econoists try to study the topic

ob-ectiely in order to separate yth fro

reality.



Mas$ring La%or/Mar1t Discrimination

Discriination is often easured by loo"ing atthe aerage !ages of different groups.




Een in a labor ar"et free of discriination,different people hae different !ages.




/eople differ in the aount of huan capitalthey hae and in the "inds of !or" they are

!illing and able to do.




Siply obsering differences in !ages aongbroad groups:!hite and blac", en and

!oen:says little about the prealence of

discriination.


22/34

Ta%" 2 Mdian Ann$a" Earnings %( Rac and S3





ecause the differences in aerage !agesaong groups in part reflect differences in

huan capital and -ob characteristics, they do

not by theseles say anything about ho!uch discriination there is in the labor

ar"et.



Discrimination %( Emp"o(rs

7irs that do not discriinate !ill hae lo!erlabor costs !hen they hire the eployees

discriinated against.




ondiscriinatory firs !ill tend to replacefirs that discriinate.




*opetitie ar"ets tend to liit the ipact ofdiscriination on !ages.

7irs that do not discriinate !ill be ore

profitable than those firs that do discriinate.



Discrimination %( C$stomrs andGo'rnmnts

lthough the profit otie is a strong forceacting to eliinate discriinatory !age

differentials, there are liits to its correctie

abilities. *ustoer preferences

;oernent policies


28/34



*ustoer preferences8 'f custoers hae discriinatory preferences, a

copetitie ar"et is consistent !ith a

discriinatory !age differential. This !ill happen !hen custoers are !illing to pay

to aintain the discriinatory practice.


29/34



;oernent policies8 #hen the goernent andates discriinatory

practices or re(uires firs to discriinate, this ay

also lead to discriinatory !age differentials.


30/34


S$mmar(

#or"ers earn different !ages for any reasons.

To soe e1tent, !age differentials copensate

!or"ers for -ob attributes.

#or"ers !ith ore huan capital get paid

ore than !or"ers !ith less huan capital.


31/34


S$mmar(

The return to accuulating huan capital ishigh and has increased oer the past decade.

There is uch ariation in earnings that cannot

be e1plained by things econoists can easure.


32/34


S$mmar(

The une1plained ariation in earnings is largelyattributable to natural ability, effort, and chance.

Soe econoists hae suggested that ore

educated !or"ers earn higher !ages because!or"ers !ith high natural ability use education

as a !ay to signal their high ability to

eployers.


33/34


S$mmar(

#ages are soeties pushed aboe thee(uilibriu leel because of iniu!age

la!s, unions, and efficiency !ages.

Soe differences in earnings are attributable todiscriination on the basis of race, se1, or other

factors.

#hen easuring the aount of discriination,one ust correct for differences in huan

capital and -ob characteristics.


34/34

S$mmar(

*opetitie ar"ets tend to liit the ipact ofdiscriination on !ages.

Discriination can persist in copetitie

ar"ets if custoers are !illing to pay ore to discriinatory firs,

or if the goernent passes la!s re(uiring firs to

discriinate.

Ch-19 earnings.ppt

Documents

Transcript of Ch-19 earnings.ppt