Unit 4 Microeconomics:Business and Labor

Chapters 9.2

EconomicsMr. Biggs

Supply and Demand for LaborEmployment or unemployment in a labor market depends on how closely the demand for workers meets the supply of workers seeking jobs.Wal-Mart is largest employer in the United States.

Labor and Wages

Labor DemandLabor comes from private firms and government agencies that hire workers to produce goods and services. Productivity - The value of output.The demand curve for labor is negatively sloped. The higher the price of labor, the smaller the quantity of labor demanded.

Labor SupplyThe supply curve for labor is positively sloped.The higher the wage, the higher the quantity of labor supplied.

Equilibrium Wage Equilibrium wage - The wage rate that does not produce an excess supply or an excess demand for workers in the labor market.

Wages and Skill LevelsWages vary according to workers skill level, education, and according to supply and demand. The higher the skill and education level, the higher the wage:• Unskilled labor - Requires no specialized

skills, education, or training.• Semi-skilled labor - Requires minimal

specialized skills and education.• Skilled labor - Requires specialized skills

and training.• Professional labor - Requires advanced

skills and education.Stressful or dangerous working conditions can also increase wages in certain job categories.

Wage DiscriminationWage discrimination occurs when people who have the same job, education level, skill set, job performance, and seniority receive unequal pay.Wage discrimination can reflect gender and ethnic prejudices.

Laws Against Wage DiscriminationThe Equal Pay Act of 1963 required that male and female employees in the same workplace performing the same job receive the same pay. Title VII of the Civil Rights Act of 1964 prohibited job discrimination on the basis of race, sex, color, religion or nationality.  The Civil Rights Act also created the Equal Employment Opportunity Commission (EEOC) to enforce the law’s provisions.

Pay Levels for WomenThe earning gap for men and women is gradually closing with today’s women making approximately 81% of what men make.Historically, the gap has been the result of social conditions for women:• “Women’s work” traditionally paid a lower

wage.For example, administrative

assistant.• Women had less human capital or

education.• Some employers still feel that the real

bread winner is the man and women will probably leave to raise a family.

Glass Ceiling - The unofficial, invisible barrier that prevents women and minorities from advancing in a business dominated by white males.

Pay Levels for MinoritiesMinorities tend to earn lower pay than Caucasians. This is due partly to productivity differences based on education and work experience.Non-discrimination laws are in part designed to help minorities gain education and access to job experience and close the wage gap.

Other Factors Affecting WagesMinimum wage laws, work-place safety laws, employer decisions, and labor unions affect wages.

 Minimum Wage LawsThe Fair Labor Standards Act of 1938 created a federal minimum wage.Minimum wage is the lowest amount that an employer can pay an employee (price floor).Supporters of minimum wage believe that it helps the poorest workers earn enough to support themselves.Critics point out that the minimum wage decreases the quantity of labor demanded and increases unemployment.

Safety LawsEmployers often lower wages to pay for safety regulation compliance.Less danger = less pay.

Employers Respond to Wage LevelsEmployers may take action to try to lower wage levels.For example, they may substitute machines for people like bank tellers for ATM machines.Firms may also take their operations to certain countries overseas where the price of labor is cheaper.For example, manufacturing televisions in Mexico.

UnionsLabor union - An organization of workers that tries to improve working conditions, wages, and benefits for its members.Nationally, union members do tend to earn higher wages than nonunion workers.Featherbedding - The practice of negotiating labor contracts that keep unnecessary workers on the company payroll.Critics of unions claim that above market negotiated union wages slows capital formation and eventually decreases consumers’ purchasing power.

The End