Earnings_ productivity_ and the job market by ert554898


									1. Which person would you expect to earn more?
   What are the major factors that would normally
   explain earnings differences between them?
  a. (1) a lawyer and (2) a minister,
  b. (1) an accountant and (2) a school teacher,
  c. (1) a business executive and (2) a social worker,
  d. (1) a country lawyer and (2) a Wall Street lawyer,
  e. (1) an experienced, skilled craftsperson and
    (2) a 20-year-old high school dropout, and,
  f. (1) an upper-story & (2) a ground-floor window
2. Should the following people expect to get (1)
   higher or (2) lower wages?
  •   The employee must work the midnight to 8 am
  •   The job involves broken intervals (work 3 hours,
      off 2 hours, work 3 additional hours, and so on) of
      employment during the day.
  •   The employer provides low-cost childcare services
      on the premises.
  •   The job is viewed as prestigious.
  •   The job requires employees to move often from
      city to city.
  •   The job requires substantial amounts of out-of-
      town travel
 Earnings, Productivity,
  and the Job Market
Why Do Earnings Differ?

   1. Non-identical Workers
     2. Non-identical Jobs
       3. Immobility of Labor
  Earnings Differentials:
1. Non-identical Workers
   • Worker productivity:
     • More productive more money
     • Tournament pay
   • Worker preferences:
     • If money is most important, pursue jobs
       with higher wages.
   • Race and gender:
     • Discrimination.
             Earnings Differences:
         Skilled and Unskilled Workers
   • The wages of unskilled workers are low relative to skilled
     workers due to the less demand and large supply of
     skilled workers relative to unskilled workers.


• Skilled workers                                Su
face strong demand       Ws
and small supply
relative to unskilled
workers.                                             Ds
         Level of Education and Earnings
                             (and Discrimination)
                    Less than          24,595                         Men
                    9th grade        18,578                           Women
• The earnings of
  both men and          High               35,121
  women increase       School          23,498
  with education.
                       Some                     42,946
                       college           29,500

• Note, though,    Bachelor’s                            62,543
that women’s        degree                    40,263
earnings were only
about 2/3 those of  Master’s                                 75,411
similarly educated   degree
men.                                              49,635

                     Doctoral                                           107,988
                      degree     56% of men’s              69,085

                             Mean earnings ($) of
                             year-round-full-time workers (2000)
             Level of Education and Earnings
                         Less than               27,190                         Men
                        high school            22,361                           Women
• Updated in 2001
                              High                  37,362
• Both still increase       school              26,660
with education.
                             Some                        45,271
                            college               32,511
• Women’s earnings
  still about 2/3
  those of similarly Bachelor’s
  educated men.         degree                          45,290

                          Master’s                                     87,022
                           degree                            57,770

                          Doctoral            10% above 2000                     118,853
                           degree           14% above 2000     71,608
                                          66% of men’s
                                      Mean earnings ($) of
                                      year-round-full-time workers (2001)
         Level of Education and Earnings
                         •Less than      •28,415                           •Men
                        high school    •20,508                             •Women
• Updated in 2005
                             •High          •40,112
• Both still increase       school       •28,657
with education.
                            •Some                •49,537
• Women’s earnings          college        •35,521
  still about 2/3
  those of similarly •Bachelor’s                           •75,130
  educated men.          degree                  •49,326

                         •Master’s                               •95,794
                           degree                    •59,569

                         •Doctoral      14.9% from 2001                      •136,567
                           degree       14.9% from 2001         •92,650
                                       47% of men’s
                          •Mean earnings ($) of
                   year-round-full-time workers (2005)
          Level of Education and Earnings
                     •Less than     •30,602                         •Men
                    high school   •21,906                           •Women
• Updated in 2007
• The earnings of
                         •High         •42,042
    both men &                      •30,657
   increase with        •Some              •50,103

Women’s earnings •Bachelor’s                         •77,536
 still only about    degree               •52,857
those of similarly •Master’s                              •94,763
 educated men.       degree
                     •Doctoral                                       •132,706
               • Comparison over time
                                     62,543               •Men
                            40,263                        •Women
• Bachelor’s
   Degree          2001                 70,253

                   2005                        75,130

                   2007                          77,536
         Earnings Differentials:
         2. Non-Identical Jobs
• Undesirable working conditions = higher wages
  (compensating wage differentials).
• Compensating wage differentials factors:
  •   Job risk
  •   Job location
  •   Working hours
  •   Work environment
 Earnings Differentials:
 3. Immobility of Labor
• An incomplete adjustment to a change in
  labor demand because of labor immobility.
• Immobility can result from:
  • Specialized labor – derived demand, so lags
  • Institutional barriers
     • Minimum wage – fewer workers hired
     • Occupational licensing - restricted
     • Labor unions - restricted

    1. Wage Discrimination
       Lower wages for minorities

2. Employment Discrimination
    Fewer jobs available for minorities
     Wage Discrimination
• When majority workers are preferred to
  minority workers (or men to women), demand
  for minority workers is reduced.
  • Minority workers receive lower wages.
           Impact of Wage Discrimination

Employment discrimination                         S
causes the demand for
minority services to
                              Ww           A
• The result is lower
  demand, and the             Wm       B
equilibrium wage will be at
a lower level, Ww > Wm .                          Dwhites


                                      Qm Qw
          Employment Discrimination
• Discriminated workers are restricted in the
  types of jobs and occupations they enter.
   • Supply in the unrestricted jobs will increase,
       causing wages to fall in these jobs.
     • When the supply (of minorities) to an occupation
       is restricted, the wages (of white males) will rise.

 Wages                             Wages       Su
Wr                               Wn
Wn                                Wu
                     Du                             Du
                     Quantity                        Quantity
       Employment Discrimination
Discrimination is costly to employers.
  • When employers can hire equally productive
    minorities (or women) at a lower wage than whites
    (men), the profit motive gives them a strong
    incentive to do so.
     • Employers who ignore minority and gender
       status when employing workers will have lower
       wage costs than employers who discriminate.
   Employment Discrimination
   and Earnings of Minorities
• Earnings may differ among groups for
  reasons besides employment discrimination.
• To measure the extent of employment
  discrimination, we must:
  • Adjust earnings for differences between
    groups in productivity-related factors such
    as education
  • Then make comparisons between similarly
    qualified groups of workers who differ only
    in race or gender.
The Actual and Productivity Adjusted Wages
     of Minorities Compared to Whites
                                  Men                      Women
                           Actual     Adjusted        Actual     Adjusted
 White            100                   100            100         100
 African-American  79                    86             90          94
 American Indian   82                    92             88          96
 Asian-American   100                    94            103          97
 Mexican-American 67                     93             75          98
 Other Hispanic    79                    92             85          95
* Data were supplied by David MacPherson, as derived from the Current
  Population Surveys (CPS). Data were adjusted for years of schooling,
  work experience, region, industry, sector of employment, union status,
  and marital status.
       •The Actual and Productivity-Adjusted Wages
            of Minorities Compared to Whites
                                    •Men                     •Women
                             •Actual    •Adjusted       •Actual    •Adjusted
  •White                     •100       •100            •100        •100
•African-American             •78        •85             •89         •92
•American Indian              •82        •95             •85         •98
•Asian-American a            •102        •90            •106         •94
•Mexican-American             •64        •88             •72         •94
 •Other Hispanic              •75        •87             •83         •91
          •a Primarily Chinese-Americans and Japanese-Americans.
  •* Data were supplied by David MacPherson, as derived from the 2003-2006
        Current Population Surveys (CPS). Data were adjusted for years of
     schooling, work experience, region, industry, sector of employment, union
                            status, and marital status.
    Productivity and Earnings
  Link Between Output and Earnings
• Productivity is the source of high wages.
• Workers in the U.S. earn high wages because
  their output per hour is high as a result of:
   • Greater worker knowledge and skills (human
  • The use of modern machinery
    (physical capital)
              Productivity and Earnings
                 •Annual rate of increase of productivity and real
             •3.2 %
                      •2.8 %                                   •2.9 %

                                                                        •2.0 %
                                      •1.5 %

                                               •0.7 %

             •1948–1973               •1974–1995            •1996–2006
        •Rise in output per hour            •Rise in real compensation
         •(private business sector)                •(private business sector)

• Productivity & compensation per hour are closely related.
• Relative to the 1948-1973 period, growth in productivity
  and real wages slowed between 1973 and 1995. Both
  rebounded substantially during the 1996-2006 time frame.
Productivity and the New Economy
 • Productivity rebounded significantly between
   1996 and 2003 after being low for the prior
   20 years.
 • New Era view
   • Proponents argue the increase in productivity
     growth is the result of increased amounts of
     information technology capital as well as a
     speedup in technological change.
 • Temporary Factors
   • Critics argue cyclical factors were responsible
     for the productivity growth.

• Automated methods of production will only
  be adopted if they reduce costs.
• Automation may reduce employment in a
  specific industry.
  • It also releases resources that can be
    employed in other areas.
• Improved technology permits us to achieve
  larger output and income levels.
1. If all persons had identical preferences and productivity factors
(ability, skill level, education, experience, etc.), the highest paying jobs
would be the most
a. prestigious.                           b.       convenient.
c. undesirable.                           d.       easily learned.
2. Automated production methods are only attractive when they
a. are undertaken in heavily unionized sectors of the economy.
b. reduce per-unit costs.
c. replace workers.
d. decrease labor productivity.
3. The fact that some people will work hard to earn a lot of money while
others will be content with much less income indicates that
a. worker preferences are an important source of earning differentials.
b. economics ranks one set of worker preferences as more desirable than
c. some people can be paid less for doing hard work while others have to be
paid a premium for doing a similar task.
d. skill levels of laborers are a minor consideration in wage rate
4. Which of the following is most likely to reduce the nominal market wage
in a job category?
a. The job requires employees to work from 11 p.m. to 7 a.m.
b. The job is prestigious, and the work is quite interesting.
c. The job is widely viewed as dangerous.
d. The job requires employees to move from city to city quite often.
5. Wages in the United States are higher than those in India primarily
a. the weather is better in the United States.
b. a larger proportion of the labor force is unionized in the US.
c. less capital per employee is required in the United States.
d. the human and physical capital of American workers exceeds that of
their Indian counterparts.
6. Economic theory suggests that the standard of living of American
workers would rise if
a. the minimum wage were doubled.
b. automation were outlawed.
c. workers were forced to retire earlier.
d. technological improvements increased output per worker-hour.
7. The earnings of all employees in a competitive economy would be
equal if
a. all individuals were homogeneous.
b. all jobs were equally attractive.
c. workers were perfectly mobile among jobs.
d. all of the above are true.
8. When employment discrimination results from the personal
prejudices of employers, economic theory suggests that
a. it is costless for employers to discriminate against groups they do
not like.
b. the wages of employees who are discriminated against will actually
c. an employer who discriminates will experience higher costs.
d. discrimination by an employer will reduce production costs since
the employer can pay lower wages.
9. In a market economy, which of the following is most important if
one is going to achieve high earnings?
a. hard work
b. provision of goods and/or services that others value highly
c. having a graduate degree in a field like history or sociology
d. membership in a labor union
10. “Both buyers and sellers are protected by market competition.
Competition is the great regulator that protects consumers against
high product prices (relative to costs) and productive workers
against low wages.” These statements are
a. essentially true.
b. false; competition protects consumers but cannot protect
c. false; competition protects workers but cannot protect
d. true, when consumer protection organizations are active and labor
unions are powerful; otherwise, it is false.

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