Learning objectives of this chapter include: Explain why labor productivity and real hourly compensation track so closely over time, show how wage rates and employment levels are determined in competitive labor markets, demonstrate how monopsony (a market with a single employer) can reduce wages below competitive levels,. | Wage Determination McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Labor, Wages, and Earnings Wages Price paid for labor Direct pay plus fringe benefits Wage rate Nominal wage Real wage General level of wages LO1 13- Role of Productivity Labor demand depends on productivity . labor is highly productive Plentiful capital Access to abundant natural resources Advanced technology Labor quality Other factors LO1 13- Real Wages and Productivity Long-run trend of average real wages in the . Real Wage Rate (Dollars) Quantity of Labor D1900 S1900 D1950 D2000 D2020 S1950 S2000 S2020 LO1 13- Real Wages and Productivity LO1 13- Competitive Labor Market Market demand for labor Sum of firm demand Example: carpenters Market supply for labor Upward sloping Competition among industries Labor market equilibrium MRP = MRC rule LO2 13- ($10) WC ($10) WC Wage Rate (Dollars) Labor Market Quantity of Labor Wage Rate (Dollars) Individual Firm Quantity of Labor QC (1000) 0 0 d=mrp qC (5) s=MRC Competitive Labor Market LO2 D=MRP (∑ mrp’s) S e b a c 13- Monopsony Model Employer has buying power Characteristics Single buyer Labor immobile Firm “wage maker” Firm labor supply is upward sloping MRC higher than wage rate Equilibrium LO3 13- Examples of monopsony power Monopsony Model Wage Rate (Dollars) Quantity of Labor 0 S MRP MRC c b a Wc Wm Qm Qc LO3 13- Monopsony Power Maximize profit by hiring smaller number of workers Examples of monopsony power Nurses Professional Athletes Teachers Three union models LO3 13- Demand Enhancement Model Union model Increase product demand Alter price of other inputs Wage Rate (Dollars) Quantity of Labor Wu Qc Qu Wc D1 D2 S Increase In Demand LO4 13- Wage Rate (Dollars) Quantity of Labor D S1 Qc Wc S2 Wu Qu Decrease In Supply Craft Union Model LO4 13- Industrial Union Model Inclusive unionism Auto and steel workers Wage Rate (Dollars) Quantity of Labor D S Qc Wc Wu | Wage Determination McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Labor, Wages, and Earnings Wages Price paid for labor Direct pay plus fringe benefits Wage rate Nominal wage Real wage General level of wages LO1 13- Role of Productivity Labor demand depends on productivity . labor is highly productive Plentiful capital Access to abundant natural resources Advanced technology Labor quality Other factors LO1 13- Real Wages and Productivity Long-run trend of average real wages in the . Real Wage Rate (Dollars) Quantity of Labor D1900 S1900 D1950 D2000 D2020 S1950 S2000 S2020 LO1 13- Real Wages and Productivity LO1 13- Competitive Labor Market Market demand for labor Sum of firm demand Example: carpenters Market supply for labor Upward sloping Competition among industries Labor market equilibrium MRP = MRC rule LO2 13- ($10) WC ($10) WC Wage Rate (Dollars) Labor Market Quantity of Labor Wage Rate (Dollars) .
