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1 Chapter 13 Earnings, Productivity, and the Job market.

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1 1 Chapter 13 Earnings, Productivity, and the Job market

2 2 Overview Signaling Signaling Sources of earning differences Sources of earning differences Productivity and employment Productivity and employment Employment discrimination Employment discrimination Non-pecuniary job characteristics Non-pecuniary job characteristics Compensating wage differentials Compensating wage differentials Automation and employment Automation and employment

3 3 Signaling Who would you hire? A.B. Person A Person B hard working lazy intelligentunintelligent critical thinking spaces out persistentquitter experiencedinexperienced effective time manager disorganized

4 4 Who Would You Hire? Scenario 1 Person A Person B Person C School: Harvard Degree: Business Administration School: University of Florida Degree: Business Administration School: West Virginia Community College Degree: Business Administration

5 5 Who Would You Hire? Scenario 2 Person A Person B Person C School: Florida State Degree: Finance GPA: 3.4 School: Florida State Degree: Finance GPA: 4.0 School: Florida State Degree: Finance

6 6 Who Would You Hire? Scenario 3 Person A Person B Person C School: Florida State Degree: Economics GPA: 3.4 Minor: Math Summer Internship Volunteer Work School: Florida State Degree: Economics GPA: 3.4 Minor: Sociology School: Florida State Degree: Economics GPA: 3.4 Minor: None

7 7 Signaling The school you attend, the degree you get, the classes you take, your GPA, your internship experience, are all signals about yourself that you send to other people (including potential employers)

8 8 Sources of Earning Differences 1. Worker productivity and specialized skills More productive and more highly skilled workers earn more money.

9 9 Sources of Earning Differences Higher output per worker → higher wages This is true: A. Across countries: the reason employees in the U.S. make more than workers in most foreign countries B. Across time: reason people make more today than they did 50 years ago

10 10 Sources of Earning Differences Tournament Pay: A type of compensation in which the top performer receives higher rewards than other competitors, even if the others perform at only a slightly lower level

11 11 Examples of Tournament Pay

12 12 Sources of Earning Differences 2. Worker preferences Greater desire to make money = earn more money

13 13 Sources of Earning Differences 3. Race and Gender Employment Discrimination: Restricting employment and earning opportunities on the basis of race, gender, or religion (not productivity) A. Employer based discrimination B. Customer based discrimination

14 14 Employment Discrimination To isolate employment discrimination, we must: 1. Adjust for differences between groups in education, experience, and other productivity related factors 2. Make comparisons between similarly qualified groups of employees who differ only in regard to race (or gender or whatever you are testing).

15 15 Employment Discrimination

16 16 Employment Discrimination MenWomen ActualAdjustedActualAdjusted White100 African-American77848992 American Indian79929498 Asian-American1049110794 Mexican-American65887393 Other Hispanic75888392

17 17 Other Sources of Earning Differences Immobility of labor Immobility of labor Cost of living differences Cost of living differences

18 18 Non-pecuniary job characteristics Non-wage characteristics of a job that influence how employees evaluate the job Such as: Working conditions, prestige, variety, location, freedom, responsibility, etc. Working conditions, prestige, variety, location, freedom, responsibility, etc.

19 19 Compensating wage differentials Wage differences that compensate workers for undesirable non-pecuniary job characteristics

20 20 Automation Automation: production technique that reduces the amount of labor necessary to produce a good or service Often replacing people with machines Often replacing people with machines Ex. Self check-out lines

21 21 Automation Is automation destroying jobs and causing unemployment?

22 22 Review 1. What do we mean by signaling 2. Know the sources of earning differences 3. Know the definition of tournament pay 4. Know how to effectively study employment discrimination (or anything else)

23 23 Review 5. Know what we mean by non-pecuniary job characteristics and compensating wage differentials 6. Know the relationship between automation and employment.

24 24 Thank You!


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