Chapter 9Chapter 9

The Role of LaborThe Role of Labor

How Are Wages Determined?How Are Wages Determined?

Have you ever wondered why working at some jobs pays so little?

Wages are governed by the forces of supply and demand.

The interaction between these two forces creates an equilibrium wage.

Demand for LaborDemand for Labor

Wages reflect a worker’s labor productivity – the value of the goods and services a worker produces in a set amount of time.

Workers with higher productivity tend to earn higher wages.

In an hour, a chef produces $50 worth of food, but in that same time an attorney may produce services valued at

$300.

Demand for LaborDemand for Labor

Demand for labor depends in part on Demand for labor depends in part on price.price.

When the price goes When the price goes downdown, demand goes , demand goes upup; and when the price does ; and when the price does upup, demand , demand goes goes downdown..

Look at the graph on pg 259Look at the graph on pg 259

Supply of LaborSupply of Labor

Workers, in general, will work for more money.Workers, in general, will work for more money.

Usually, workers earning more than an Usually, workers earning more than an advertised salary will not leave their current advertised salary will not leave their current employment for less payemployment for less pay

Usually, workers earning less than an advertised Usually, workers earning less than an advertised salary will leave their current employment for salary will leave their current employment for more pay.more pay.

More More moneymoney = more = more workersworkers

Less Less moneymoney = less = less workersworkers

Why Do Wage Rates Differ?Why Do Wage Rates Differ?

Different jobs have different Different jobs have different wage rateswage rates, , rates of pay for specific jobs or work.rates of pay for specific jobs or work.Wage rates are determined by supply Wage rates are determined by supply and demand, which are influenced by and demand, which are influenced by four factors:four factors:

1.1. Human CapitalHuman Capital2.2. Working ConditionsWorking Conditions3.3. Discrimination in the WorkplaceDiscrimination in the Workplace4.4. Government ActionsGovernment Actions

Human CapitalHuman Capital

Workers are grouped according to the amount Workers are grouped according to the amount of of human capitalhuman capital they have. they have.

1.1. Unskilled workersUnskilled workers (housekeepers and (housekeepers and sanitation workers) have a low level of human sanitation workers) have a low level of human capitalcapital

2.2. Semiskilled workers Semiskilled workers (construction & clerical) (construction & clerical) have received some training.have received some training.

3.3. Skilled workersSkilled workers – (plumbers & electricians) – (plumbers & electricians) have specialized training.have specialized training.

4.4. Professional workersProfessional workers – (doctors, lawyers & – (doctors, lawyers & teachers) have intensive specialized training.teachers) have intensive specialized training.

Are these jobs unskilled, Are these jobs unskilled, semiskilled, skilled, or semiskilled, skilled, or

professional?professional?

Human CapitalHuman Capital

The demand for skilled and professional workers is high, but the supply of these workers is relatively low. Because of this and training increases their productivity, highly skilled workers tend to receive higher wages. That is why many people invest their human capital and enroll in vocational school, specialist training, and college.

More Skill More PayMore Skill More Pay

Professional

Skilled

Semiskilled

Unskilled

$$$$

$$

$$

Working ConditionsWorking ConditionsIn reality, higher wages are paid to workers in dangerous or unpleasant occupations to attract qualified people.

Workers will take less pay so they don’t have to commute for an hour, and other workers would take more pay in return for commuting for an hour.

Working Conditions – Child LaborWorking Conditions – Child Labor

DiscriminationDiscrimination

Wage discrimination has been based on race, ethnicity, and gender.

Prejudice employers may not hire a minority applicant. If they follow that practice, they might hurt the productivity of their firm by not hiring the best applicant.

Women and minorities have had to deal with a glass ceiling, which is an artificial barrier that limits wages and advancement.

Government ActionsGovernment ActionsThe government sometimes steps in when market forces produce results that people disagree with. Minimum wage is an example of government action. Minimum wage sets a minimum amount that workers must be paidBusinesses point out they might hire more workers if they were allowed to pay a lower wage.

Trends in Today’s Labor MarketTrends in Today’s Labor Market

Economists group occupations into three categories:

1. Primary Sector – jobs related to natural resources, farming, forestry, fishing, and mining.

2. Secondary sector – jobs related to the production of goods, welders, truck drivers, and construction workers.

3. Tertiary sector – jobs related to the service industry, banking, insurance, retail, education, and communications.

Are these jobs primary, Are these jobs primary, secondary, or tertiary?secondary, or tertiary?

Technology and ChangeTechnology and Change

In 1955, you pull up to the gas station, what events would transpire?

A man would come out pump the gas, check under the hood, clean window, and you would pay him. Full – service

Today, what happens when you pull up to the gas station?

You pump the gas and pay at a computerized, credit-card operated gasoline pump. Self -Service

TechnologyTechnologyThe computer and technology have drastically changed how we perform our jobs.

Nearly half of all American’s use a computer on the job. Because of this, occupations have sprung up that support the use of computers – software engineers and data analysts.

Globalization and JobsGlobalization and Jobs

Companies over the last decade have turned to outsourcing to produce goods and services. Most outsourcing by US companies goes to other US companies. The term in recent years has been connected with the practice of moving jobs to foreign countries where wages are lower. Media reports tell us about the numerous amounts of jobs leaving the US. Most companies actually add more jobs, just in different parts of the company. In 2004, IBM sent 3,000 jobs overseas, but created 4,500 jobs in the US.

Changes in the Way People WorkChanges in the Way People Work

Technology has changed the way people Technology has changed the way people perform their jobs. perform their jobs.

The internet and laptop computers have allowed The internet and laptop computers have allowed workers to engage in workers to engage in telecommutingtelecommuting. Meaning . Meaning they are doing office work in a location other they are doing office work in a location other than a traditional than a traditional officeoffice..

Organized Labor in the United Organized Labor in the United StatesStates

Labor Movement’s Rise to Power

Organized labor can be given credit for many of today’s modern working benefits.

1. Eight-hour work day

2. Five-day work week

3. Vacations

4. Sick leave

Labor UnionsLabor Unions

Industries in the 1800’s saw workers put in long hours, often 60 hours a week. They worked in dangerous conditions, and received no compensation if hurt or killed on the job. These events caused factory workers to join together and act as a group. Workers created labor unions, an organization of workers who seek to improve wages, working conditions, benefits, and job security.A method utilized by unions is a strike, or a work stoppage.

Unions Gain PowerUnions Gain Power

In 1886, Samuel Gompers founded the American Federation of Labor (AFL).

This organization focused on interests of skilled workers.

By the early 1900’s the AFL had a membership of 1.7 million workers.

Unions Gain PowerUnions Gain Power

Laws passed during the Great Depression (1930’s) helped strengthen unions.Norris-LaGuardia Act (1932)National Labor Relations Act (1935) aka Wagner ActFair Labor Standards Act (1938)During this period the Congress of Industrial Organizations (CIO) organized for industrial workers.

Backlash Against UnionsBacklash Against Unions

Following WW II, a period of anti-union legislation sprung up.

In 1947, over the veto of President Truman, Congress passed the Taft-Hartley Act. It amended the Wagner Act and limited union activities, increasing governments power to intervene if a strike might threaten national security.

Labor’s Steady DeclineLabor’s Steady Decline

In the second half of the 1900’s unions began to decline politically and through membership.

Union membership was rooted in rooted in manufacturing industries. Employment since 1950 shifted towards service industries.

Unions have attempted to attract service workers by creating the Service Employees International Union (SEIU). In 2005, they had 1. 8 million members.

Union MembershipUnion Membership

Many jobs still have labor Many jobs still have labor unions?unions?

Unions and BusinessUnions and Business

Unions had developed Unions had developed closed shopsclosed shops, which , which meant an employer could only hire union meant an employer could only hire union members. members.

Unions also created Unions also created union shopsunion shops, which meant , which meant that workers are required to join a union within a that workers are required to join a union within a set time period after being hired.set time period after being hired.

In recent years, many states have passed In recent years, many states have passed right-right-to-work lawsto-work laws. This makes it illegal to require . This makes it illegal to require workers to join unions. workers to join unions.

Negotiating MethodsNegotiating Methods

Unions use collective bargaining, which is a process of negotiation between businesses and their organized employees to establish wages and improve working conditions. If both sides can not come to an agreement, they can use binding arbitration, a decision by a neutral third party.