Labor Economics: Real Wages, Productivity, and Labor Markets, Slides of Microeconomics

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Copyright 2008 The McGraw-Hill Companies26-1 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show 26 Wage Determination Docsity.com Copyright 2008 The McGraw-Hill Companies26-2 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Chapter Objectives • Why Labor Productivity and Real Hourly Compensation Track So Closely Over Time • How Wage Rates and Employment Levels are Determined in Competitive Labor Markets • How Monopsony Can Reduce Wages Below Competitive Levels • How Unions Can Increase Wage Rates • The Major Causes of Wage Differentials • The Types, Benefits, and Costs of “Pay-for-Performance” Plans Docsity.com Copyright 2008 The McGraw-Hill Companies26-5 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Real Wages and Productivity • Secular Growth of Real Wages • Long Run Trend of Real Wages in the U.S. R ea l W ag e R at e (D ol la rs ) Quantity of Labor D1900 S1900 D1950 D2000 D2020 S1950 S2000 S2020 Docsity.com Copyright 2008 The McGraw-Hill Companies26-6 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Purely Competitive Labor Market • Market Demand for Labor • Market Supply for Labor • Labor Market Equilibrium • MRP = MRC Rule Graphically… Docsity.com Copyright 2008 The McGraw-Hill Companies26-7 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Purely Competitive Labor Market W ag e R at e (D ol la rs ) W ag e R at e (D ol la rs ) ($10) WC ($10) WC Labor Market Individual Firm Quantity of Labor Quantity of Labor QC (1000) 0 0 D=MRP (∑ mrps) d=mrp qC (5) s=MRC S e c b a G 26.1Docsity.com Copyright 2008 The McGraw-Hill Companies26-10 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models • Demand Enhancement Model –Increase Product Demand –Increase Productivity –Alter the Price of Other Inputs W ag e R at e (D ol la rs ) Quantity of Labor Wu Qc Qu Wc D1 D2 S Increase In Demand Docsity.com Copyright 2008 The McGraw-Hill Companies26-11 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models • Exclusive or Craft Union Model –Restricted Immigration –Reduced Child Labor –Encouraged Compulsory Retirement –Shorter Hour Workweek –Exclusive Unionism –Occupational Licensing Graphically… Docsity.com Copyright 2008 The McGraw-Hill Companies26-12 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Three Union Models • Exclusive or Craft Union Model W ag e R at e (D ol la rs ) Quantity of Labor D S1 Qc Wc S2 Wu Qu Decrease In Supply Docsity.com Copyright 2008 The McGraw-Hill Companies26-15 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Bilateral Monopoly • Indeterminate Outcome • Desirability of Bilateral Monopoly W ag e R at e (D ol la rs ) Quantity of Labor D=MRP S Qc Wc Wu Qu=Qm MRC Wm a Docsity.com Copyright 2008 The McGraw-Hill Companies26-16 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Minimum Wage • Case Against the Minimum Wage • Case For the Minimum Wage • State and Locally Set Rates • Evidence and Conclusions Docsity.com Copyright 2008 The McGraw-Hill Companies26-17 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Wage Differentials Average Annual Wages in Selected Occupations, 2005 Surgeons Aircraft Pilots Petroleum Engineers Financial Managers Law Professors Chemical Engineers Dental Hygienists Registered Nurses Police Officers Electricians Travel Agents Barbers Retail Salespersons Recreation Workers Teacher Aides Fast Food Cooks $177,690 135,040 97,350 96,620 95,570 79,230 60,620 56,880 47,270 45,630 37,750 24,700 23,170 22,420 21,100 15,500 Source: Bureau of Labor Statistics, 2006 Occupation Annual Average Wages Docsity.com Copyright 2008 The McGraw-Hill Companies26-20 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Wage Differentials • Marginal Revenue • Market Imperfections –Lack of Job Information –Geographic Immobility –Unions and Government Restraints –Discrimination Docsity.com Copyright 2008 The McGraw-Hill Companies26-21 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Pay for Performance • The Principal-Agent Problem Revisited • Incentive Pay Plan • Piece Rates • Commissions or Royalties • Bonuses, Stock Options, and Profit Sharing • Efficiency Wages • Negative Side-Effects of Pay for Performance O 26.3 O 26.4 Docsity.com Copyright 2008 The McGraw-Hill Companies26-22 Labor Wages and Earnings Real Wages and Productivity Purely Competitive Labor Market Monopsony Model Three Union Models Bilateral Monopoly Minimum Wage Wage Differentials Pay for Performance Last Word Key Terms End Show Are Chief Executive Officers (CEOs) Overpaid? • Current U.S. 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 Docsity.com