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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 washer? 2. Should the following people expect to get (1) higher or (2) lower wages? • The employee must work the midnight to 8 am shift. • 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. Wages Ss • Skilled workers Su face strong demand Ws and small supply relative to unskilled workers. Ds Wu Du Quantity 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 ($) of year-round-full-time workers (2000) Level of Education and Earnings Less than 27,190 Men high school 22,361 Women • Updated in 2001 High 37,362 • Both still increase school 26,660 with education. Some 45,271 college 32,511 • Women’s earnings still about 2/3 70,253 those of similarly Bachelor’s educated men. degree 45,290 Master’s 87,022 degree 57,770 Doctoral 10% above 2000 118,853 degree 14% above 2000 71,608 66% of men’s Mean earnings ($) 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 school both men & •30,657 women increase with •Some •50,103 education. college •38,396 Women’s earnings •Bachelor’s •77,536 still only about degree •52,857 2/3 those of similarly •Master’s •94,763 educated men. degree •63,156 •Doctoral •132,706 degree •85,190 • Comparison over time 62,543 •Men •2000 40,263 •Women • Bachelor’s Degree 2001 70,253 45,290 2005 75,130 49,326 2007 77,536 52,857 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 Discrimination 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 Wages Employment discrimination S causes the demand for minority services to decrease. Ww A • The result is lower demand, and the Wm B equilibrium wage will be at a lower level, Ww > Wm . Dwhites Dminorities Employment 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 Sr 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 2003-2006* 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 2003-2006* •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 capital) • The use of modern machinery (physical capital) Productivity and Earnings •Annual rate of increase of productivity and real wages •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. Automation • 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 another. 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 determination. 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 because 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 rise. 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 workers. c. false; competition protects workers but cannot protect consumers. d. true, when consumer protection organizations are active and labor unions are powerful; otherwise, it is false.
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