Relative income: why? $5 million $30,000 What determines a person’s income? SUPPLY of and DEMAND for their HUMAN CAPITAL.

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Presentation transcript:

Relative income: why? $5 million $30,000

What determines a person’s income? SUPPLY of and DEMAND for their HUMAN CAPITAL

High or Low Incomes High demand, low supply, high income Low demand, high supply, low income Wage is the measurement of relative scarcity of particular types of workers. If you want a high income, develop skills and knowledge in high demand with low supply. Make yourself stand out in the crowd.

The Demand for Labor is a Derived Demand Business managers hire workers to produce a good or service that can be sold for a profit. Product demand changes so particular jobs change. Transferable skills are useful. Education and training are ongoing.

The Demand for Labor is a Derived Demand Employers hire workers to help them produce goods and services. If the value of what they produce is greater than the wage they are being paid, employers will keep them. If not, they won’t.

All other things being equal higher education and/or training leads to higher income

If you want a good income, make yourself scarce. Develop marketable skills through: –more education –more training What skills are likely to be marketable?

The Labor Market (Assume a wage of $100 per day) WorkersTotal Product Marginal Product Price Marginal Revenue Product $15 $180

The Labor Market (Assume a wage of $100 per day) WorkersTotal Product Marginal Product Price Marginal Revenue Product $15 $180 $150 $120 $90 $60

The Marginal Principle in the Labor Market A firm will hire workers up to the point where their wage is equal to their marginal revenue product W = MRP If they gain more than they give up, employers will hire workers.

The hiring decision and the constant search for substitutes Hire you? Hire a different worker? Hire a machine?

Main Points Relative wage is the measure of the relative scarcity of particular workers. Relative wages are not a matter of fair or moral value. The labor market of the 21 st century is characterized by rapid technological change, global competition, demand for highly skilled workers, numerous job and career changes, and constant upgrades of skills and knowledge. The demand for labor is a derived demand.

MAKE YOURSELF SCARCE!!!!