2. WAGE DETERMINATION Pertemuan 21 Matakuliah: J0114-Teori Ekonomi Tahun: 2009

3. Bina Nusantara University 3 Labor Wages and Earnings Wage Rate Nominal Wage Real Wage General Level of Wages Role of Productivity –Plentiful Capital –Access to Abundant Natural Resources –Advanced Technology –Labor Quality –Other Factors

4. Bina Nusantara University 4 Purely Competitive Labor Market Market Demand for Labor Market Supply for Labor Labor Market Equilibrium MRP = MRC Rule Graphically…

5. Bina Nusantara University 5 Purely Competitive Labor Market Wage Rate (Dollars) ($10) W C ($10) W C Labor MarketIndividual Firm Quantity of Labor QCQC (1000) 00 D=MRP (∑ mrps) d=mrp qCqC (5) s=MRC S e c b a

6. Bina Nusantara University 6 Monopsony Model Monopsony Upward-Sloping Labor Supply to Firm MRC Higher Than the Wage Rate Equilibrium Wage and Employment Graphically… O 26.1 G 26.2

7. Bina Nusantara University 7 Monopsony Model Wage Rate (Dollars) Quantity of Labor 0 S MRP MRC c b a WcWc WmWm QmQm QcQc Examples of Monopsony Power Monopsonistic Labor Market

8. Bina Nusantara University 8 Three Union Models Demand Enhancement Model –Increase Product Demand –Increase Productivity –Alter the Price of Other Inputs Wage Rate (Dollars) Quantity of Labor WuWu QcQc QuQu WcWc D1D1 D2D2 S Increase In Demand

9. Bina Nusantara University 9 Three Union Models Exclusive or Craft Union Model –Restricted Immigration –Reduced Child Labor –Encouraged Compulsory Retirement –Shorter Hour Workweek –Exclusive Unionism –Occupational Licensing Graphically…

10. Bina Nusantara University 10 Three Union Models Exclusive or Craft Union Model Wage Rate (Dollars) Quantity of Labor D S1S1 QcQc WcWc S2S2 WuWu QuQu Decrease In Supply

11. Bina Nusantara University 11 Three Union Models Inclusive or Industrial Union Model –Inclusive Unionism Wage Rate (Dollars) Quantity of Labor D S QcQc WcWc WuWu QuQu QeQe a b e

12. Bina Nusantara University 12 Three Union Models Wage Increases and Unemployment Average 15% Higher Wages Reduced Employment Levels Corrected by: –Growth –Elasticity

13. Bina Nusantara University 13 Bilateral Monopoly Indeterminate Outcome Desirability of Bilateral Monopoly Wage Rate (Dollars) Quantity of Labor D=MRP S QcQc WcWc WuWu Q u =Q m MRC WmWm a

14. Bina Nusantara University 14 Minimum Wage Case Against the Minimum Wage Case For the Minimum Wage State and Locally Set Rates Evidence and Conclusions

15. Bina Nusantara University 15 Wage Differentials Average Annual Wages in Selected Occupations, 2005 Surgeons Aircraft Pilots Petroleum Engineers Financial Managers Law Professors Chemical Engineers Dental Hygienists Registered Nurses Police Officers Electricians Travel Agents Barbers Retail Salespersons Recreation Workers Teacher Aides Fast Food Cooks $177,690 135,040 97,350 96,620 95,570 79,230 60,620 56,880 47,270 45,630 37,750 24,700 23,170 22,420 21,100 15,500 Occupation Annual Average Wages

16. Bina Nusantara University 16 Wage Differentials Marginal Revenue Productivity Noncompeting Groups –Ability –Education and Training Human Capital Compensating Differences O 26.2

17. Bina Nusantara University 17 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 18-2425-3435-4445-5455-6465+ Wage Differentials Education Levels and Individual Annual Earnings Educational Attainment Annual Earnings (Thousands of Dollars ) Age Professional Degree Bachelor’s Degree Associate’s Degree High School Diploma

18. Bina Nusantara University 18 Wage Differentials Marginal Revenue Market Imperfections –Lack of Job Information –Geographic Immobility –Unions and Government Restraints –Discrimination