1. What is fair pay? W = P * MP

2. http://money.cnn.com/2005/04/15/pf/college/starting_salaries/ What is fair pay? W = P * MP

3. Kevin J. Murphy “Executive Compensation” in O. Ashenfelter and D. Card eds. Handbook of Labor Economics Vol. 3B. 1999

4. Stock Option Time P0P0 T1T1 P1P1 Strike Price

5. Stock Option Time P0P0 Option “in the money” T1T1 P1P1 Gain

6. The Economist January 21, 2006 Average CEO Pay, Company with annual revenues of $500 million

7. Kevin J. Murphy “Executive Compensation” in O. Ashenfelter and D. Card eds. Handbook of Labor Economics Vol. 3B. 1999

8. Why not offer stock options to everyone? THE WALL STREET JOURNAL February 24, 2005; Page A1 Silicon Volley As Tech Matures, Workers File A Spate of Salary Complaints

9. Limitations on the Market Paradigm What determines wages within firms? Internal Labor Markets—Job allocation and compensation decisions within firms Pay structure set by steps, grades, equal treatment across workers within classifications (clerical, blue collar, professional, …)

10. Limitations on the Market Paradigm Pay structure may be partially divorced from market forces Example California Merit Pay System Market forces most important at entry level

11. The Market for Nurses Frequently alleged that nurses are underpaid relative to their fair value

12. Growth of Usual Weekly Wages for Physicians, Nurses, Manufacturing Workers, and Private Sector Workers, 1980-2002 Occupation198019922006 Physicians45210071583 Registered Nurses2976621051 Manufacturing289470749 Private Sector235364585 CPI87140.3202.4 Source: U.S. Bureau of Labor Statistics. Employment and Earnings. Various issues. Updated by National Occupational Employment and Wage Estimates

13. Growth of Usual Weekly Wages for Physicians, Nurses, Manufacturing Workers, and Private Sector Workers, 1980-2006 Percent Growth in Real Wages = 100*{(W t / P t ) / (W t-1 /P t-1 )} Occupation1980-19921992-2006 1980-2002 Physicians 38.2 9.0 50.5 Registered Nurses 38.2 10.0 52.1 Manufacturing 0.8 10.5 11.4 Private Sector -4.0 11.4 7.0 Source: U.S. Bureau of Labor Statistics. Employment and Earnings. Various issues.