Chap 15 AP Micro
real wages and productivity - long run trend of real wages in the US
the productivity of US labor has increased significantly in the long run leading to a greater increase in demand (D) for labor, relative to supply of labor (S) resulting in higher wages US's increases
demand enhancement model how do unions increase wages?
union model increase demand for union labor by altering price of other inputs 1. convince consumers to buy only union products - advertising quality of union products 2. lobbying government officials to increase demand 3.increase the price of substitute resources
considering a monopsony firm cant wage discriminate and must pay each worker the same wage...
the marginal resource cost is the wage rate, + how much the wage rate is increasing by x the amount of workers under hire and under pay because they can
rates
*wage rate *- hourly pay *nominal wage* - not adjusted for inflation - moey recieved per hour day year *real wage* - adjusted for inflation, reveals purchasing power of nominal wage-quantity of goods and services a worker can obtain with nominal wage
inclusive or industrial union (unskilled workers)
1. inclusive unionism - most unions try to organize all avaliable workers - auto and steel workers 2. if a union w these workers doesnt organize all workers, employer could break a strike by substituting non-union workers for unskilled union workers 3. to prevent, industrial union that includes almost all workers can put firms under pressure to agree to its wage demands s and d intersect, and a perfectly elastic line hits above equilibrium
for monopsonies..
MRC does not equal the supply - mrc is greater than supply because more they hire, have to increase wages and they cant wage discriminate because theyre paying all workers the same
what explains wage differentials
Marginal revenue productivity noncompetiting groups - (ability - supply of top talent is limited and less talanted people are imperfect substitutues - top talent therefore = hgiher slaaries education and training increases ones MRP) compensating differences -
minimum wage
a minimum amount employers are allowed to pay their workers - wage floor put above equilibrium which makes q demanded fall and q supplied increase... surplus of workers! unemployment
pay for performance
The principal-agent problem(interests of workers and firms arent identical), is solved by incentive pay plans: Piece rates Commissions or royalties Bonuses, stock options, and profit sharing Efficiency wages Negative side-effects (i.e. poor product quality, unethical behavior to hit quotas)
what if a strong industrial union exists in a monopsonist labor market rather than a competitive labor market?
bilateral monopoly - monopsony v inclusive union (single buyer v single seller) outcome of this is indeterminate as the monopsony will want to pay a wage lower than competitive equilibrium and the union will demand a wage higher than competitive equilibrium - wage decided at bargaining table s and d intersect, mrc is higher than s , and wage decided where d and mrc intersect
monopsony
characteristics *one firm hiring workers*- the firm is large enough to manipulate the market *workers are relatively immobile* *firm is wage maker* -to hire additional workers the firm must increase the wage
labor demand
depends on productivity - greater productivity of labor = leads to greater demand for it why is US Labor highly productive? -plentiful capital -access to abundant natural resources -advanced technology -labor quality
unions success
depends. union workers wages are 15% higher on average than non union workers consequences for above equilibrium wage rates - fewer workes are demanded (higher unemployment) -restricted ability to demand higher wages since union trying to maintain solidarity
side by side graph - perfectly competitive labor market and firm hiring workes
industry on right, firm on left supply and demand in first one and wage at equilibirum, bring it over and that is s=MRC and then d=MRP demand sloping down, wages lower higher demand for workers and higher wages more supply so supply upwards WAGE SET BY MARKET
other reasons for wage differences
insufficient/misleading job info - workers do not know what they should be paid geographical immobility - too poor to move so accept wage unions -collectice bargaining lead to higher equilibrium wages wage discrimination -race or gender
how is market demand for labor found
market supply curve for labor slopes upward. - pay higher wages for more workers adding up horizontally each firm's individual demand for labor at different wage rates. This is exactly how the market demand for a product is found. Market Demand curve is downward sloping.
wages consist of
price paid for labor + fringe benefits (health benefits, company car etc!)
perfect competition product market vs resource market
product market - s=mc is nike swoosh and d=mr is a straight line resource market - s=mrc is a straight line d=mrp is a reverse nike swoosh
competitive product market v, competitive labor market
products are identical and consumers have no reason to pay a price above the market price; result is demand is perfectly elastic workers have identical skills and workers have no reason to accept a wage below the market wage - result is supply of labor is perfectly elastic
how to find wage and quantity of labor that would be hired by a monopsony
quantity is where mrc and mrp (demand) intersect, then dash down and that should be where the wage is
exclusive or craft union (skilled owrkers) how do unions increase wages?
supply decrease 1. boost wage rates by supporting policies that reduce the supply of labor (restrict immigration, reduce child labor, forced retirement at age, shorter workweek) 2. exclusive unionism - craft unions or skilled unions reduce membership through restrictive policies (long apprenticeships, high initiation fees) 3. occupational licensing - professional organizations also prohibit competition from less qualified labor suppliers
goal of labor unions
to increase wages and benefits for members do this by
