Download Employment and Wages 2

Employment and Wages
What Determines Wages?
Reference 8.1
Key Questions to Answer
• Who or what determines the amount
people earn at various jobs?
• Why do some people earn higher wages
than others?
• What are nonmoney benefits?
• What’s the difference between money
wages and real wages?
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
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 Rises
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
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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
“Job benefits”
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
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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.
Ch 8 enrichment
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 $226.00
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).
$8 per hr. (2007) v. $8 per hr. (2011)
• To find real wage: Money Wage ÷ CPI
• 2007
• 2011
$8.00 ÷ 208.936 = .038 (or 3.8%)
$8.00 ÷ 226.889 = .035 (or 3.5%)
What can you learn from this?
• You could buy 3.5% of some theoretical composite
good worth $100 in 1982-84.
• Your money will buy .3% less today than in 2007.
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?
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
Complete the worksheet: Demand,
Supply and Wage Rate
• Employers will demand…
• Workers will supply…
• What will the wage rate be in each instance?
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.