1. The Role of Labor

2. Chapter 9: The Role of Labor
KEY CONCEPT
Labor, the human effort used to produce goods and services, is subject to the same forces of demand and supply that govern the rest of the economy.
WHY THE CONCEPT MATTERS
The value of your labor depends on the demand for what you do and the supply of other people able to do the same thing. You have to figure out what you do best and to create a plan to get a job that suits your talents. Consider the demand for the job, the training needed, and the supply of people capable of performing it.

3. How Are Wages Determined?
Section-1
How Are Wages Determined?
Labor: Demand and Supply
KEY CONCEPTS
Price of land, labor, capital, entrepreneurship are production costs
Price of labor is wages—payment workers receive for their work
Wages are governed by supply and demand
— equilibrium wage: number of workers needed equals number available

4. Labor: Demand and Supply
Demand for Labor
Wages reflect productivity—value of product produced in set time
Producer’s demand for labor is a derived demand:
— demand based on its contribution to the final product
Workers with higher productivity tend to earn higher wages
Demand curve is downward sloping: lower price means higher demand

5. Labor: Demand and Supply
Supply of Labor
More workers willing to work at higher wages
— supply curve for labor is upward sloping

6. Labor: Demand and Supply
Equilibrium Wage
Wages gravitate toward equilibrium
— price at which there is neither surplus nor shortage

7. Why Do Wage Rates Differ?
KEY CONCEPTS
Wage rates—rates of pay for specific jobs
Rates determined by supply and demand
Supply and demand influenced by four factors:
— human capital—knowledge and skills that enable workers to be productive
— working conditions; discrimination in workplace; government actions

8. Why Do Wage Rates Differ?
Factor 1: Human Capital
Unskilled: few skills; include house cleaning, sanitation workers
Semiskilled: some training; include construction, clerical workers
Skilled: specialized training; include plumbers, electricians
Professional: much specialized training; include doctors, lawyers
Skilled workers: high demand and productivity, low supply, high wages

9. Why Do Wage Rates Differ?
Factor 2: Working Conditions
High wages paid for dangerous or unpleasant occupations
— examples: washing skyscraper windows, collecting garbage
Advantages may make up for low wages
— examples: employee discounts, short commute

10. Why Do Wage Rates Differ?
Factor 3: Discrimination
Wage discrimination based on race, ethnicity, gender, other factors
Some low-paying jobs seen as realm of certain groups
— workers trapped, unable to earn enough to invest in training
— Equal Pay Act and Civil Rights Act try to break cycle
glass ceiling—unseen barriers preventing skilled workers from advancing

11. Why Do Wage Rates Differ?
Factor 4: Government Actions
Minimum wage—lowest wage legally allowed for one hour of work
— acts as price floor for wages of low-income workers
— businesses say would hire more workers if could pay less
In1933, Congress passed first minimum wage; has increased several times
Many states, local governments require higher minimum wage

12. Gary Becker: The Importance of Human Capital
Investing in Yourself
Says economic principle of rational choice can be used in other areas
The Economics of Discrimination studied how prejudice affected “the earnings, employment, and occupations of minorities”
Thinks human capital includes good work habits, good medical care
Helped quantify importance of education, on-the-job training

13. Reviewing Key Concepts
Explain the relationship between the terms in each of these pairs:
wages and derived demand
equilibrium wage and minimum wage
wage rate and human capital

14. Trends in Today’s Labor Market
Section-2
Trends in Today’s Labor Market
A Changing Labor Force
KEY CONCEPTS
1950s workers planned to work for same company most of life
— counted on company pensions for retirement
Today, few workers stay with same company
— workers responsible for own retirement
Civilian labor force is people 16 or older who are employed or looking for work

15. A Changing Labor Force Changes in the U.S. Labor Force
Since 1950s, many women have entered work force
— more types of jobs have opened up; wages have risen
Work force is better educated
— 30 percent are college graduates; 30 percent have some college credits
— High degree of human capital means high productivity and wages

16. Changing Occupations KEY CONCEPTS
Occupations grouped into three economic sectors
— primary: jobs related directly to natural resources
— secondary: jobs producing goods or processing raw materials
— tertiary: service-industry jobs
Ten fastest-growing occupations are service related, most medical

17. Changing Occupations Technology and Change
Technology has eliminated or changed many jobs in all three sectors
Computers, Internet changed how information stored, transferred, used
About half of American workers use computer on the job
— 80 percent of managers and professionals
— 20 percent of machine operators, farmers, laborers

18. Changing Occupations Globalization and Jobs
Outsourcing—contracting with outside company for goods or services
— most with United States companies; some in foreign countries where
wages are lower
Insourcing—foreign companies establishing operations in U.S.
Both practices tied to trends toward service, technology-related jobs

19. Changes in the Way People Work
KEY CONCEPTS
Telecommuting—working away from the office, using computers, Internet
Contingent employment—temporary or part-time work
Independent contractors sell services to businesses on contract basis
Most people change careers several times as working world changes

20. Changes in the Way People Work
Working at the Office from Home
Workers get less stress, flexible work time, no commute
Employers get larger labor pool, more productivity; need less real estate
Society gets less pollution from fewer drivers
Workers find work spills into private life; miss social, network time
Number of telecommuters grew by about 20 percent from 2000 to 2005

21. Changes in the Way People Work
Alternatives to Permanent Employment
1990s fewer full-time, more contingent workers and contractors hired
— today’s workforce: over 5 percent temps; over 7 percent contractors
Easier for businesses to adjust work force to fit production demands
— discharging temps is less costly; no benefits means lower labor costs
Most temps want permanent jobs; many contractors want to be own boss

22. Changes in the Way People Work
Changing Careers More Often
New technologies create new jobs
— older occupations become less in demand or obsolete
— workers must learn and adapt to new technologies
Economy changing more quickly than in past
— companies change their business plans constantly to maximize profits

23. Reviewing Key Concepts
Explain the relationship between the terms in each of these pairs:
outsourcing and insourcing
contingent employment and independent contractor

24. Organized Labor in the United States
Section-3
Organized Labor in the United States
The Labor Movement’s Rise to Power
KEY CONCEPTS
Labor unions helped shape modern workplace; brought about
— eight-hour day, five-day week, vacation, sick leave
Labor union—workers’ organization that seeks to improve work matters
Strike—work stoppage to convince employer to meet union demands
Different types for different needs, such as craft, industrial unions

25. The Labor Movement’s Rise to Power
Early Developments
Earliest unions were local craft unions; in 1830s began federations
— National Trades Union was first national federation
In 1869, Knights of Labor organized workers by industry; grows to become nationwide organization
In late 1800s, employers resisted workers’ efforts to organize
— government often used violence to end strikes, such as Carnegie Steel and Pullman strikes

26. The Labor Movement’s Rise to Power
A New Model for Unions
Violence, controversial politics led to decline in union membership
1886 Samuel Gompers founded American Federation of Labor—craft unions
— at first focused on using economic power of workers
— legal action against unions led to support of pro-union candidates
Other actions by International Ladies’ Garment Workers, Mother Jones

27. The Labor Movement’s Rise to Power
Unions Gain Power
During Great Depression membership declined as people lost jobs
Several New Deal laws helped workers and unions:
— Norris-LaGuardia, National Labor Relations, Fair Labor Standards Acts
Congress of Industrial Organizations organized industrial unions
United Auto Workers, United Mine Workers became powerful in 1930s–1940s

28. The Labor Movement’s Rise to Power
Backlash Against Unions Following World War II
Post-World War II period of anti-union legislation
— Taft-Hartley limited union activities, allowed government intervention
Fear of Communism led to more restrictions
— Landrum-Griffin banned communist officers, required close accounting
— AFL-CIO’s George Meany got rid of unions sympathetic to communist ideas

29. The Labor Movement’s Steady Decline
KEY CONCEPTS
For 30 years post-World War II, unions included 30 percent work force
Since mid-1970s, membership declined to about 12.5 percent in 2005
— three causes: poor reputations, labor force changes, restrictive laws

30. The Labor Movement’s Steady Decline
Loss of Reputation and Labor Force Changes
Unions looked bad: long strikes, featherbedding, organized crime ties
Lost members: economy shifted from manufacturing to service
Today, many contingent and contract workers who do not organize
Unions have now shifted efforts to service industries

31. The Labor Movement’s Steady Decline
Right-to-Work Laws
Closed shop—business had to hire only union members; now outlawed
— maintained union standards for temporary workers
Union shop—business where workers had to join union within set period
— allowed hiring of non-union workers without weakening union
Right-to-work laws—make it illegal to require workers to join unions

32. Union Negotiating Methods
KEY CONCEPTS
Collective bargaining—negotiation process of businesses and organized workers
— establishes wages and working conditions
Unions can get better deal for workers than individual employees
— unionized companies tend to pay higher wages

33. Union Negotiating Methods
Collective Bargaining
In past bargained for wages, conditions, benefits; today to stop cuts
Few strikes now since managers will replace workers, close plants
If agreement cannot be reached, mediator may be brought in
Next step: binding arbitration—decision made by impartial third party
Government may issue injunction forcing public safety workers back

34. Reviewing Key Concepts
Explain the relationship between the terms in each of these pairs:
closed shop and union shop
strike and collective bargaining

35. Managing Change in Your Work Life
Background
The United States economy has shifted from manufacturing to service and knowledge-based industries.
Companies establish offices around the globe. Outsourcing and insourcing of jobs result in both benefits and challenges.
What’s the Issue?
How will you respond to the changing dynamics of the work environment?

36. Managing Change in Your Work Life {continued}
Thinking Economically
What skills are you likely to need in order to manage change successfully in your work life? Use examples from the documents.
In documents A and B, are the types of change similar or different? Are their effects on workers positive or negative? Explain.
Compare the opportunities afforded by change in documents A and C. How are they similar? How are they different?

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