Chapter 26

Presentations 2

Minimum Wage

• “Wage Floor” set to help less skilled workers earn enough money to escape poverty

2012 Ohio Minimum Wage• $7.70 per hour for non-tipped employees

• $3.85 per hour for tipped employees (plus tips)

• The Federal Wage is $7.25 per hour

Criticism of Minimum Wage

• Higher wages often force employers to cut back and the low wage workers that the minimum wage was designed to help find themselves out of work

• Poorly targeted- many of the jobs go to teenagers instead of individuals in poverty

Pro Minimum Wage

• Paying higher wages would increase productivity and thus justify the increase in pay

• Higher pay would also keep turnover rates down in unskilled positions

Minimum Wage Graph

Poverty Levels

• Persons in Income Levelfamily/household

• 1 $11,170

• 2 15,130

• 3 19,090

• 4 23,050

• 5 27,010

• 6 30,970

• 7 34,930

• 8 38,890

Wage Differentials

• The difference between the wage received by one worker or group of workers and that received by another worker or group of workers

• Ex- 1st year news anchor v. experienced anchor

Compensating Differences

• Differences in the wages received by workers in different jobs to compensate for nonmonetary differences in jobs

• Ex- construction workers often make more than sales clerks due to the physical rigors and seasonal employment of construction

Human Capital

• Personal stock of knowledge and skills that enables a person to be productive and thus to earn income

Barriers to Higher Wages

• 1. lack of job information

• 2. geographic immobility

• 3. union and government restrictions

• 4. Discrimination

Incentive Pay Plans

• Ties worker compensation directly to performance

Ways to fight Ineffective Workers- Incentive Pay

• 1. Piece Rates- pay per # output

• 2. Commission or Royalties- based on value of sales

• 3. Bonuses, Stock Options and Profit Sharing

• 4. Efficiency Wages- pay above equilibrium wages

Are You Kidding Me?

• 5 Highest Paid CEOs, 2011 (in millions)

• 1. Lawrence Ellison, Oracle ($56.8)

• 2. Carol Bartz, Yahoo ($47.2)

• 3. Leslie Moonves, CBS Corp ($43.2)

• 4. Marc Casper, Thermo Fisher ($34.3)

• 5. John Hammergren, McKesson ($34.2)

Labor Unions

• These organizations have many goals including improved working conditions, hours, etc

• ***Main objective is to increase wages***

• There are 3 union models in which they attempt to obtain better wages

1. Demand Enhancement Model

• From a union viewpoint, the best way to raise wages is to increase the demand for labor

• This increase in labor demand will create higher wages and more jobs

• 3 ways this can occur:– A. Increase Product Demand (advertising)– B. Increase Productivity (– C. Alter the Price of Other Inputs (reduce tariffs

on complementary goods or increase on substitutes)

• Demand Enhancement Model–Increase Product Demand–Increase Productivity–Alter the Price of Other Inputs

Wag

e R

ate

(Do

llar

s)

Quantity of Labor

Wu

Qc Qu

Wc

D1

D2

S

IncreaseIn Demand

2. Exclusive Union (Craft Union)

• Reduce the supply of labor to raise wages

• Occupational Licensing that requires certain training to be part of the union

• Ex- American Medical Association, American Bar Association

3. Inclusive Union (Industrial Union)

• Try to make all available labor in an industry part of a union- skilled and unskilled workers

• Strengthens the threat of a strike so companies are much more likely to give higher wages

Bilateral Monopoly

• A monopoly v. a Monopsony

• 1 supplier of labor (union) and 1 company hiring (monopoly)