Wage Determination .


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Compensation Defined.... Compensation - Salary - Earnings. Wage RateNominal WagesReal Wages. Universal differences.... Work, WAGES, AND EARNINGS. 0 5 10 15 20 25. GermanyDenmarkSwitzerlandUnited StatesJapanSwedenUnited KingdomFranceCanadaItalyAustraliaKoreaTaiwanMexico.
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15 C H A P T E R HELP WANTED Wage Determination

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LABOR, WAGES, AND EARNINGS Wages Defined... Compensation - Salary - Earnings Wage Rate Nominal Wages Real Wages International contrasts...

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GLOBAL PERSPECTIVE Hourly Wages of Production Workers, Selected Nations Hourly Pay in U.S. Dollars, 2001 0 5 10 15 20 25 Germany Denmark Switzerland United States Japan Sweden United Kingdom France Canada Italy Australia Korea Taiwan Mexico Source: U.S. Authority of Labor Statistics, 2003

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GENERAL LEVEL OF WAGES Role of Productivity Plentiful Capital Access to Abundant Natural Resources Advanced Technology Labor Quality Other Factors

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REAL WAGES AND PRODUCTIVITY Growth in genuine pay (profit) Growth in yield per laborer hour Can just develop at about a similar rate! Mainstream Growth of Real Wages

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PURELY COMPETITIVE LABOR MARKET Purely focused work showcase: Many Firms Numerous Qualified Workers "Wage Taker" Behavior Market Demand for Labor Market Supply of Labor

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Non-Labor Costs Wage Rate (dollars) Quantity of Labor Quantity of Labor PURELY COMPETITIVE LABOR MARKET EQUILIBRIUM S Includes Normal Profit S = MRC W c ($10) $10 W c Labor Costs D = MRP (  mrp\'s) d = mrp (1000) (5) Individual Firm Labor Market

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Marginal Resource Cost (MRC) will be steady and equivalent to asset value (the wage rate). Non-Labor Costs Wage Rate (dollars) Quantity of Labor Quantity of Labor PURELY COMPETITIVE LABOR MARKET EQUILIBRIUM S Includes Normal Profit S = MRC W c ($10) $10 W c Labor Costs D = MRP (  mrp\'s) d = mrp (1000) (5) Individual Firm Labor Market

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MONOPSONY MODEL Single Buyer of a kind of work The sort of work is generally stationary "Wage Maker" Behavior Upward-Sloping Supply Curve to Firm

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MONOPSONISTIC LABOR MARKET S In monopsony MRC lies over the supply bend. Wage Rate (dollars) Quantity of Labor

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MONOPSONISTIC LABOR MARKET MRC S MRP = MRC Wage Rate (dollars) W m MRP Q m units of work procured Q m Quantity of Labor

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MONOPSONISTIC LABOR MARKET MRC S The focused arrangement would bring about a higher wage and more noteworthy Employment. Wage Rate (dollars) W c W m MRP Q m Q c Quantity of Labor

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Monopsonists boost benefits by procuring a littler number of specialists and in this manner paying a not as much as aggressive wage rate. MONOPSONISTIC LABOR MARKET MRC S The aggressive arrangement would bring about a higher wage and more prominent business Wage Rate (dollars) W c W m MRP Q m Q c Quantity of Labor

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THREE UNION MODELS Demand-Enhancement Model S Wage Rate (dollars) W c D 1 Q c Quantity of Labor

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THREE UNION MODELS Demand-Enhancement Model ...by expanding item request S Wage Rate (dollars) W u W c D 2 D 1 Q c Q u Quantity of Labor

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THREE UNION MODELS Demand-Enhancement Model ...by expanding item request ...by expanding efficiency S Wage Rate (dollars) W u W c D 2 D 1 Q c Q u Quantity of Labor

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THREE UNION MODELS Demand-Enhancement Model ...by expanding item request ...by expanding profitability ...by expanding the cost of substitutes S Wage Rate (dollars) W u W c D 2 D 1 Q c Q u Quantity of Labor

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THREE UNION MODELS Exclusive or Craft Model S 1 Wage Rate (dollars) W c D Q c Quantity of Labor

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THREE UNION MODELS Exclusive or Craft Model ...prohibitive participation strategies S 2 S 1 Wage Rate (dollars) W u W c D Q c Q u Quantity of Labor

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THREE UNION MODELS Exclusive or Craft Model ...prohibitive enrollment approaches ...confining work supply of the economy in general S 2 S 1 Wage Rate (dollars) W u W c D Q c Q u Quantity of Labor

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THREE UNION MODELS Exclusive or Craft Model ...prohibitive participation approaches ...limiting work supply of the economy all in all … word related authorizing S 2 S 1 Wage Rate (dollars) W u W c D Q c Q u Quantity of Labor

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THREE UNION MODELS Inclusive or Industrial Model ...by sorting out for all intents and purposes all specialists and in this way control of the supply bend for work creating… S Wage Rate (dollars) W c D Q c Quantity of Labor

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THREE UNION MODELS Inclusive or Industrial Model ...by arranging practically all specialists and along these lines control of the supply bend for work creating… S Wage Rate (dollars) W u W c D Q c Q u Q e Quantity of Labor

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WAGE INCREASES AND UNEMPLOYMENT Union individuals get around 15% higher wages Negative effect on level of business Negative unemployment impact decreased by: Growth Elasticity

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MRC S Wage Rate (dollars) W u W c W m D D=MRP Q c Q u =Q m Quantity of Labor BILATERAL MONOPOLY MODEL Monopsonist & Union Seek Different Wage Rates... … monetary hypothesis can\'t decide the real result.

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BILATERAL MONOPOLY MODEL Monopsonist & Union Seek Different Wage Rates... MRC S … financial hypothesis can\'t decide the genuine result. Wage Rate (dollars) W u W c W m D D=MRP Desirability of Bilateral Monopoly Q c Q u =Q m Quantity of Labor

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MINIMUM WAGE CONTROVERSY Case A gainst Minimum Wage Case For Minimum Wage Evidence and Conclusions

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WAGE DIFFERENTIALS Marginal Revenue Productivity Noncompeting Groups Ability Education and Training Investment in Human Capital

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WAGE DIFFERENTIALS Compensating Differences Nonmonetary Differences Market Imperfections Lack of Job Information Geographical Immobility Unions & Government Restraints Discrimination

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PAY FOR PERFORMANCE The Principal-Agent Problem Incentive Pay Plan Piece Rates Commissions or Royalties Bonuses, Stock Options, & Profit Sharing Efficiency Wages

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PAY FOR PERFORMANCE Negative Side-Effects of Pay for Performance Poor Product Quality Questionable or Fraudulent Sales Practices Disruption of Teamwork Free Ride by Low Producers Low Turnover Decreases Hiring Opportunities

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wage rate ostensible wage genuine wage absolutely focused work showcase monopsony select unionism word related authorizing comprehensive unionism respective imposing business model the lowest pay permitted by law wage differentials negligible income profitability noncompeting bunches interest in human capital repaying contrasts motivation pay arrange KEY TERMS Copyright McGraw-Hill/Irwin, Inc. 2005 BACK END

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Next: Rent, Interest, and Profit Chapter 16

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