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Employment and Wages What Determines Wages? Reference 8.1.

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Presentation on theme: "Employment and Wages What Determines Wages? Reference 8.1."— Presentation transcript:

1 Employment and Wages What Determines Wages? Reference 8.1

2 Key Questions to Answer Who or what determines the amount people earn at various jobs? Why do some people earn higher wages than others? What’s the difference between money wages and real wages?

3 The Laws of Supply and Demand hold for Labor, too. Demand Curve for Labor: How many workers employers will demand at each price Supply Curve for Labor: How many workers will supply their labor at each price. Equilibrium Price = Wage Rate

4 Surplus and Shortage Surplus of Labor = Quantity of Labor supplied is greater than Quantity Demanded –Surplus of Labor -- Wage Rate Falls Shortage of Labor = Quantity of labor supplied is less than quantity demanded –Shortage of Labor – Wage Rate Rises

5 Why do wage rates differ? Make a list of reasons why people may make different amounts of money in their employment…..

6 Why do wage rates differ? Special Skill –Innate Ability –Additional training Demand for Good ( DERIVED DEMAND FOR LABOR ) Gender Location Productivity Few others are willing and able to do the work We can conclude that wage rates may differ because the demand for different types of labor is not the same OR because the supply of different kinds of labor is not the same

7 “Job benefits” Job Benefits = Monetary Benefits (wages or income) + Nonmonetary Benefits Discuss with your partner: What are examples of nonmonetary benefits? Which would be the most important to you? How much money would you be willing to give up for this benefit?

8 Money Wage vs. Real Wage Measuring wage rate by the amount of money earned tells us money wage Measuring wage rate by what the money will buy is real wage Real Wage is determined by dividing money wage by the Consumer Price Index (CPI)

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10 CPI-Consumer Price Index Issued by the Bureau of Labor Statistics, measurements of the changes in prices and wages are used to determine inflation or deflation. A sample of goods that cost $100.00 in 1982-1984 would cost about $218.00 today.

11 The CPI market basket The CPI market basket represents all the consumer goods and services purchased by urban households. Price data are collected for over 180 categories, which BLS has grouped into 8 major groups. These major groups, with examples of categories in each, are as follows: Food and beverages (ham, eggs, carbonated drinks, coffee, meals and snacks); Housing (rent of primary residence, fuel oil, bedroom furniture); Apparel (men’s shirts and sweaters, women’s dresses, jewelry); Transportation (new vehicles, gasoline, tires, airline fares); Medical care (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services); Recreation (television sets, cable TV, pets and pet products, sports equipment, admissions); Education and communication (college tuition, postage, telephone services, computer software and accessories); Other goods and services (tobacco and smoking products, haircuts and other personal care services, funeral expenses).

12 Minimum Wage Law 1938 Fair Labor Standards Act –Originally 25 cents/hr., raised to 40 cents 2001 federal min. wage $5.15 –Equal to 46 cents in 1938 California minimum wage law today-$8.00

13 Review In a competitive labor market, suppose the quantity demanded of labor is greater than the quantity supplied. What will happen to the wage rate? It will rise. A shortage of labor will increase the “price” of labor.

14 Review Over the past three years Ruth’s money wages have increased ten percent., and prices have increased 13 percent. What has happened to Ruth’s real wages?

15 Complete the worksheet: Demand, Supply and Wage Rate Employers will demand… Workers will supply… What will the wage rate be in each instance?

16 Homework Review Chapter 6.1 and 6.2 Review Chapter 7 Review Chapter 8.1 –QUIZ NEXT CLASS!!!

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