Chapter 13 Wage Determination Notes

Chapter 13 Wage Determination Notes - Chapter 13 Wage...

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Chapter 13: Wage Determination Labor, Wages, and Earnings: - “labor” broadly to apply to (1) blue- and white-collar workers of all varieties; (2) professional people such as lawyers, physicians, dentists, and teachers; and (3) owners of small businesses, including barbers, plumbers, and a host of retailers who provide labor as they operate their own businesses - Wages are the price that employers pay for labor; direct money, hourly pay, annual salary, bonuses, commission, and royalties o Also fringe benefits: paid vacations, health insurance, and pension o Wages, here, will refer to everything that can be converted to an hourly basis - Wage Rate : the income of those who supply the economy with labor o Price paid per unit of labor services, hour of work - Nominal Wage : the amount of money received by a worker per unit of time (hour, day, etc); money wage - Real Wage : the amount of goods and services a worker can purchase with their nominal wage; the purchasing power of the nominal wage o Depends on nominal wage and the prices of the goods and services you purchase General Level of Wages : - The general, or average, level of wages, like the general level of prices, includes a wide range of different wage rates. (Easiest to compare among regions and among nations) - Higher real wages in industrially advanced economies is that the demand for labor in those nations is relatively large compared to the supply of labor - Role of Productivity o Greater the productivity of labor, the greater the demand for it; if the total supply of labor is fixed, then the stronger the demand for labor, the higher is the average level of real wages Plentiful Capital: workers in advanced economies have access to large amounts of physical capital equipment (machinery and buildings) Access to Abundant Natural Resources: abundant in relation to the size of the labor force Advanced Technology: have come capital equipment, but it is also superior to equipment available to the vast majority of workers worldwide Labor Quality: Health, vigor, education, and training of workers in advanced economies is generally superior than in developing nations Other Factors: efficiency, flexibility, environment, size of domestic market, specialization, etc. - Real Wages and Productivity o Real Income and Real Output are two ways of viewing the same thing; Real Income (compensation) per worker can increase only at about the same rate as output per worker
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Real World: Land, capital, and entrepreneurial talent also share in the income from production; real wages therefore do not always rise in lockstep with gains over the short run; long periods, rise together - Long-Run Trend of Real Wages o increases in labor demand have outstripped increases in labor supply; the long-run, or secular, increase in wage rates and employment A Purely Competitive Labor Market: - Purely Competitive Labor Market : A resource market in which many firms compete with one another in hiring a specific kind of labor, numerous equally qualified
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