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The Labor Market Where does that wage come from?.

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Presentation on theme: "The Labor Market Where does that wage come from?."— Presentation transcript:

1 The Labor Market Where does that wage come from?

2 What determines the wage? The interaction of labor supply and labor demand SLSL DLDL Number of Workers Wage

3 Equilibrium Also called the market clearing wage –When Q S L = Q D L Disequilibrium –When Q S L = Q D L

4 At Disequilibrium can have… Shortage (too few workers) –Q S L < Q D L –Wage too low –Wage must increase to rid shortage Surplus (too many workers) –Q S L > Q D L –Wage too high –Wage must decrease to rid surplus

5 Moving to Equilibrium Number of Workers Wage DLDL SLSL Shortage Surplus Equilibrium

6 Moving to Equilibrium If we have a surplus, wage must _______ to get to equilibrium. Decrease If we have a shortage, wage must _______ to get to equilibrium. Increase

7 In-class exercise 8 Supply and Demand of Labor

8 What about other countries? Earnings ratio 1975 Earnings ratio 1994 Australia8086 Denmark83 Korea4752 Japan4943

9 Why the difference? Labor force structure –More physical (male oriented) –Gender earnings ratio would? decrease –More service (female oriented) –Gender earnings ratio would? increase Occupation sex structure –Are women in the low wage jobs? –Gender earnings ratio would? decrease

10 Degree of modernization –Is women’s major focus still seen as in the household? –Gender earnings ratio would? decrease Gender ideology –Are there certain male jobs vs female jobs –Does society frown on women working? –Gender earnings ratio would? decrease

11 What can explain the differences between men and women? Two theories… Individualist theory –Women possess attitudes, preferences and qualifications that make them less productive and less desirable to higher wage jobs –No discrimination –Difference from preference for ideal job by men and women –Individual is at fault –Supply Side

12 Types of Individualist Theories Neoclassical Theory –Men and women are free to choose Amount of education to obtain Time to stay in the labor market To work full or part time –How these things are chosen determines wage –Men and women choose different amounts

13 Does work effort by men and women differ on average? Work effort: how much time men/women plan to spend in the labor force Men –Spend more time in labor force –Have more physical jobs –Have more full time work –All increase wages

14 So…why are women are in the “low wage” occupations?? Remember the female occupation formula?? To avoid physical (labor) or nonphysical (high stress) disamenities Gain better working conditions –Bad working conditions usually have high wages to entice people to take job Less depreciated knowledge if drop out of labor market for some time –atrophy

15 Atrophy How many of you took 5 th grade math? It was claimed that the shepherd was the shepherd of 2000 sheep. The shepherd exclaimed, "I am not the shepherd of two thousand sheep!" Pointing to his flock, he added, "If I had that many sheep plus another flock as large as that, then again half as many as I have out there, I would be the shepherd of two thousand sheep." How many sheep were in the shepherd's flock? X+X+(1/2X) = 2000 or X = 800

16 Second Individualist theory Status Attainment –Sociologists attempt to link characteristics of a person (race, sex..) to status in labor force –Pre-market discrimination inhibits people from getting certain skills (discrimination exists) –BUT choices made by individuals prior to entry to job pushes men to be more successful

17 If true… Why is the gender gap decreasing??? Are women now making different (better) choices? Yes… –More education –More experience –More On the Job Training –All which increases wages

18 Institutionalist Theory Individual is not at fault…ECONOMY IS –Employers, employees, or customers have a taste for discrimination Mechanisms in the labor market that restrict choice and competition for jobs It is how firms demand their labor not how people supply their labor Demand side

19 Types of Institutionalist theories Labor market segmenting theories –Wages are determined by the sector one is in –Internal labor market Administrative decision of where you are put Primary sector ( increasing wage, OJT, unions, promotions) Secondary sector (constant wage, no OJT, no unions, dead end job) –Women almost twice as likely to be in secondary

20 Second type Occupation Segregation –Jobs vary according to the sex composition Why? –Employer wants certain types of workers –Employees want to work with certain types of workers –Customers want to deal with certain types of workers Graphs (discrimination vs. non-discrimination case)

21 Ls’ Ls Ls’ Ld # workers Wage Firm Discriminates Firm does not Discriminate 21 W2 W1 W2 21

22 Third type of Institutionalist theory Statistical discrimination –Discrimination against a class of persons because of group rather than individual characteristics –Ex. On average women tend to leave a job after 3 years –Interpretation is that ALL women tend to leave a job after 3 years –Hard to overcome because it is an attitude

23 End of Material for Midterm

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