Download Employment and Wages 1

Employment and Wages
What Determines Wages?
Reference 8.1
Key Questions to Answer
Why do some people earn higher wages
than others?
Who or what determines the amount
people earn at various jobs?
Why do wage rates differ?
The Laws of Supply and
Demand hold for Labor, too.
Demand Curve for Labor: How many
workers employers will demand at each
price
Supply Curve for Labor: How many
workers will supply their labor at each
price.
Equilibrium Price = Wage Rate
Complete the worksheet: Demand,
Supply and Wage Rate
Employers will demand…
Workers will supply…
What will the wage rate be in each instance?
Surplus and Shortage
Surplus of Labor = Quantity of Labor
supplied is greater than Quantity
Demanded

Surplus of Labor -- Wage Rate Falls
Shortage of Labor = Quantity of labor
supplied is less than quantity demanded

Shortage of Labor – Wage Rate Falls
Why do wage rates differ?
Make a list of reasons why people may make
different amounts of money in their
employment…..
Why do wage rates differ?
Special Skill


Innate Ability
Additional training
Demand for Good (derived demand for labor)
Gender
Location
Productivity
Few others are willing and able to do the work
We can conclude that wage rates may differ because the
demand for different types of labor is not the same OR
because the supply of different kinds of labor is not the
same
p.211
Are TV, Movie, and Sports Stars Worth the Many
Millions they Earn?
Michael Jordan made 100x the salary of
the lowest paid player on the team. Why
do you think there is such a large
difference between what the star makes
and those who work with the star?
You have just been offered 3 jobs
1. In your hometown, $30,000
2. 2,000 miles away in Lansing, Michigan
$50,000
3. In the most beautiful place in the nation,
$25,000.
Which job would you take? Why?
Job Benefits =
Monetary Benefits (wages or income) +
Nonmonetary Benefits
Discuss with your partner: What are examples of nonmonetary
benefits? Which would be the most important to you? How
much money would you be willing to give up for this benefit?
Nonmonetary Benefits at Google
Food
Hungry? Check out our free lunch and dinner – our gourmet chefs create a wide variety of healthy
and delicious meals every day. Got the munchies? Google also offers snacks to help satisfy you in
between meals.
On-site Doctor
At Google headquarters in Mountain View, California you have the convenience of seeing a doctor
on-site. Physical therapy and chiropractic services are also available.
Shuttle Service
Google is pleased to provide its Mountain View employees with free shuttles to several San
Francisco, East Bay and South Bay locations.
Financial Planning Classes
Google provides objective and conflict-free financial education classes. The courses are
comprehensive and cover a variety of financial topics.
Other On-Site Services
At Google headquarters in Mountain View, you'll find on-site oil change and car wash services, dry
cleaning, massage therapy, gym, hair stylist, fitness classes and bike repair.
Other Great Benefits
Halloween & holiday party, health fair, credit union, roller hockey, outdoor volleyball court,
discounts for products and local attractions.
Money Wage vs. Real Wage
Measuring wage rate by the amount of
money earned tells us money wage
Measuring wage rate by what the money
will buy is real wage
Real Wage is determined by dividing
money wage by the Consumer Price Index
(CPI)
CPI-Consumer Price Index
Issued by the Bureau of Labor Statistics,
measurements of the changes in prices
and wages are used to determine inflation
or deflation.
A sample of goods that cost $100.00 in
1982-1984 would cost about $218.00
today.
The CPI market basket
The CPI market basket represents all the consumer goods and
services purchased by urban households. Price data are collected
for over 180 categories, which BLS has grouped into 8 major
groups. These major groups, with examples of categories in each,
are as follows:
• Food and beverages (ham, eggs, carbonated drinks, coffee, meals
and snacks);
• Housing (rent of primary residence, fuel oil, bedroom furniture);
• Apparel (men’s shirts and sweaters, women’s dresses, jewelry);
• Transportation (new vehicles, gasoline, tires, airline fares);
• Medical care (prescription drugs and medical supplies, physicians’
services, eyeglasses and eye care, hospital services);
• Recreation (television sets, cable TV, pets and pet products, sports
equipment, admissions);
• Education and communication (college tuition, postage, telephone
services, computer software and accessories);
• Other goods and services (tobacco and smoking products, haircuts
and other personal care services, funeral expenses).
Minimum Wage Law
1938 Fair Labor Standards Act

Originally 25 cents/hr., raised to 40 cents
2001 federal min. wage $5.15

Equal to 46 cents in 1938
California minimum wage law today-$8.00
Review
In a competitive labor market, suppose the
quantity demanded of labor is greater than
the quantity supplied. What will happen to
the wage rate?
It will rise. A shortage of labor will
increase the “price” of labor.
Review
John earns $7/hr. Kim earns $23/hr.
In general, why does Kim earn more than John?
Supply and demand conditions are different in
Kim’s market than John’s market.


There may be a greater supply of workers in John’s
market.
There may be greater demand for workers in Kim’s
market
Review
Over the past three years Ruth’s money
wages have increased ten percent., and
prices have increased 13 percent. What
has happened to Ruth’s real wages?
Will increased immigration lead to
higher or lower wages?
P. 205
Homework
Find an article in a newspaper, periodical
or internet news site that relates to people
earning different incomes. Write a one
paragraph explanation in economic terms
for the differences in salary. Attach a copy
of the article to your paragraph.
Read Chapter 8.3 “Measuring Unemployment”
Complete Section Review #1-5