THE LABOR MARKETTHE LABOR MARKET

Principle #7: People’s skills Principle #7: People’s skills influence their income. influence their income.

Relative income: why?Relative income: why?

$5 million$5 million

$30,000$30,000

What determines What determines a person’s income?a person’s income?

SUPPLY of and DEMAND for their HUMAN CAPITAL

High or Low IncomesHigh or Low Incomes

High demand, low supply, high incomeHigh demand, low supply, high income Low demand, high supply, low incomeLow demand, high supply, low income Wage is the measurement of relative Wage is the measurement of relative

scarcity of particular types of workers.scarcity of particular types of workers. If you want a high income, develop skills If you want a high income, develop skills

and knowledge in high demand with low and knowledge in high demand with low supply. Make yourself stand out in the supply. Make yourself stand out in the crowd. crowd.

MAKE YOURSELF MAKE YOURSELF SCARCE!!!!SCARCE!!!!

THE NEW LABOR MARKETTHE NEW LABOR MARKETThat was then, this is now That was then, this is now

THEN NOW

GLOBAL COMPETITON, RAPIDLY CHANGING TECHNOLOGY

BASIC SKILLS REQUIRED: ASSEMBLY LINE

Agricultural

Manufacturing

Service Knowledge

ImaginationInformation

The U.S. EconomyThe U.S. Economy

The Demand for Labor The Demand for Labor is a Derived Demandis a Derived Demand

Business managers hire workers to Business managers hire workers to produce a good or service that can be sold produce a good or service that can be sold for a profit. for a profit.

Product demand changes so particular Product demand changes so particular jobs change.jobs change.

Transferable skills are useful.Transferable skills are useful. Education and training are ongoing. Education and training are ongoing.

Table I: Then and nowTable I: Then and nowThe Information/ Knowledge Age

Technology change

Competition

Type of production

Role of workers

Skill requirements

Employment

Learning span

The Industrial Age

Took years to accomplish

Local, state, national

Manufacturing

Manual Laborer

Strength, dexterity, stamina

Lifetime with one employer

Kindergarten-12th grade

Months, weeks to accomplish

Global

Service, info, knowledge

Designer, engineer, manager

Scans (see Table II)

Change jobs at least six times, careers three times

Lifetime

The Demand for Labor The Demand for Labor is a Derived Demandis a Derived Demand

Employers hire workers to help them Employers hire workers to help them produce goods and services.produce goods and services.

If the value of what they produce is greater If the value of what they produce is greater than the wage they are being paid, than the wage they are being paid, employers will keep them. If not, they employers will keep them. If not, they won’t.won’t.

The Principle of The Principle of ExchangeExchange

Employers will hire workers if they Employers will hire workers if they gain more from hiring them than gain more from hiring them than

they give up. they give up.

All other things being All other things being equalequal

higher education higher education

leads to higher incomeleads to higher income

Dreams Deferred: Dreams Deferred: Average Earnings and Education for Adults, 2002Average Earnings and Education for Adults, 2002

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Education

Earnings

Dropout

High School

Some College

Associate's

Bachelor's

Master's

Doctorate

Professional

Source: U.S. Census Bureau, Statistical Abstract of the United States: 2004 - 2005

If you want a good income, If you want a good income, make yourself scarce.make yourself scarce.

Develop marketable skills through:Develop marketable skills through: more educationmore education more trainingmore training

What skills are likely to be marketable?What skills are likely to be marketable?

Table II: SCANS 2000Table II: SCANS 2000Skills Descriptions

Basics

Thinking

Personal

Interpersonal

Systems

Information

Technology

Resources

Reading, writing, mathematics, listening, speaking

Creative thinking, decision making, problem solving, knowing how to learn, reasoningResponsibility, self-esteem, sociability, self management, integrityPlanning, organizing, monitoring, assessing, evaluating, adjustingTeamwork, teaching, serving clients/customers, leadership, negotiating, working with people of diverse cultural backgrounds

Understand social, organizational and technological systems; monitor and correct systemsAcquiring and evaluating, organizing and maintaining, interpreting and communicating, using computers to process information

Selecting equipment and tools, applying technology to specific tasks, maintaining and troubleshooting technologies, learning new technologies

Basic SkillsBasic Skillsreadingreadingwritingwritingmathematicsmathematicslisteninglisteningspeakingspeaking

Thinking SkillsThinking Skillscreative thinkingcreative thinkingdecision-makingdecision-makingproblem solvingproblem solvingvisualizingvisualizingknowing how to learnknowing how to learnreasoningreasoning

Personal QualitiesPersonal Qualitiesresponsibilityresponsibilityself--esteemself--esteemsociabilitysociabilityself-managementself-managementintegrityintegrity

Resource AllocationResource Allocationplanningplanningorganizingorganizingmonitoringmonitoringassessingassessingevaluatingevaluatingadjustingadjusting

Interpersonal SkillsInterpersonal Skills team skillsteam skills teachingteaching serving clients/customersserving clients/customers leadershipleadership negotiatingnegotiating working with people of diverse working with people of diverse

cultural backgroundscultural backgrounds

Systems - Social, Systems - Social, organizational, and organizational, and

technologicaltechnologicalunderstandingunderstandingmonitoringmonitoringcorrectingcorrecting

InformationInformationacquiring and evaluatingacquiring and evaluatingorganizing and maintainingorganizing and maintaininginterpreting and interpreting and

communicatingcommunicatingusing computers to processusing computers to process

TechnologyTechnologyselectingselectingapplying to specific tasksapplying to specific tasksmaintaining and troubleshootingmaintaining and troubleshootingkeeping up to datekeeping up to date learninglearning

To compete in a To compete in a global economy, global economy,

you will need you will need these skillsthese skills

The Mirror: An Incredibly The Mirror: An Incredibly Powerful Package of Human Powerful Package of Human

Capital!Capital!

You are the You are the only one who only one who can develop can develop your human your human capital….. capital….. not your not your

teachers, not teachers, not your parents, your parents,

YOUYOU

The Labor MarketThe Labor Market(Assume a wage of $100 per day)(Assume a wage of $100 per day)

Workers Total

Product

Marginal

Product

Product

Price

Marginal Revenue Product

3

4

5

6

7

8

18

30

40

48

54

58

12

$15

$15

$15

$15

$15

$15

$180

The Labor MarketThe Labor Market(Assume a wage of $100 per day)(Assume a wage of $100 per day)

Workers Total

Product

Marginal

Product

Product

Price

Marginal Revenue Product

3

4

5

6

7

8

18

30

40

48

54

58

12

10

8

6

4

$15

$15

$15

$15

$15

$15

$180

$150

$120

$90

$60

The Marginal PrincipleThe Marginal Principlein the Labor Marketin the Labor Market

A firm will hire workers up to the point A firm will hire workers up to the point where their wage is equal to their marginal where their wage is equal to their marginal revenue productrevenue product

W = MRPW = MRP

If they gain more than they give up, If they gain more than they give up, employers will hire workers.employers will hire workers.

The hiring decision and the The hiring decision and the constant search for substitutesconstant search for substitutes

Hire you?Hire you?

Hire a different worker?Hire a different worker?

Hire a machine?Hire a machine?

Main PointsMain Points Relative wage is the measure of the relative Relative wage is the measure of the relative

scarcity of particular workers. scarcity of particular workers. Relative wages are not a matter of fair or Relative wages are not a matter of fair or

moral value.moral value. The labor market of the 21The labor market of the 21stst century is century is

characterized by rapid technological change, characterized by rapid technological change, global competition, demand for highly skilled global competition, demand for highly skilled workers, numerous job and career changes, workers, numerous job and career changes, and constant upgrades of skills and and constant upgrades of skills and knowledge. knowledge.

The demand for labor is a derived demand.The demand for labor is a derived demand.

Main PointsMain Points

Education and training improve human capital and Education and training improve human capital and increase peoples’ expected income.increase peoples’ expected income.

Relative wages are determined by supply and demand. Relative wages are determined by supply and demand. High wages are earned by workers with very scarce High wages are earned by workers with very scarce

human capital --- high demand and low supply.human capital --- high demand and low supply. Low wages are earned by workers whose human capital Low wages are earned by workers whose human capital

is not so scarce --- high supply of workers with similar is not so scarce --- high supply of workers with similar human capital. human capital.

Employers hire workers as long as they expect to gain Employers hire workers as long as they expect to gain more than they give --- as long as the expected marginal more than they give --- as long as the expected marginal revenue product of the worker is greater than the wage. revenue product of the worker is greater than the wage.

MAKE YOURSELF MAKE YOURSELF SCARCE!!!!SCARCE!!!!