Ch-19 earnings.ppt
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Transcript of Ch-19 earnings.ppt
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Copyright2004 South-Western
1919Earnings andDiscrimination
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Copyright 2004 South-Western
Earnings and Discrimination
Differences in Earnings in the United States
Today
The typical physician earns about $200,000 a year.
The typical police officer earns about $50,000 ayear.
The typical far !or"er earns about $20,000 a year.
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Earnings and Discrimination
#hat causes earnings to ary so uch%
#ages are goerned by labor supply and labor
deand.
&abor deand reflects the arginal productiity oflabor.
'n e(uilibriu, each !or"er is paid the alue of his
or her arginal contribution to the econoy)sproduction of goods and serices.
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SOME DETERMINANTS OFEQUILIBRIUM WAGES
*opensating differentials
+uan capital
bility, effort, and chance
Signaling
The superstar phenoenon
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Compnsating Di!!rntia"s
Compensating differential refers to a difference
in !ages that arises fro nononetary
characteristicsof different -obs.
*oal iners are paid ore than others !ith siilarleels of education.
ight shift !or"ers are paid ore than day shift
!or"ers. /rofessors are paid less than la!yers and doctors.
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#$man Capita"
Human capital is the accuulation of
inestents in people, such as education and
onthe-ob training.
The ost iportant type of huan capital iseducation.
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#$man Capita"
Education represents an e1penditure of
resources at one point in tie to raise
productiity in the future.
y the year 2000, a an !ith a college degreeearned ore than 34 percent ore than !ithout
one. #oen sho!ed a 0 percent increase in
earnings due to a college degree.
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Ta%" & A'rag Ann$a" Earnings%( Ed$cationa" Attainmnt
Copyright2004 South-Western
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A%i"it() E!!ort) and C*anc
#hy has the gap in earnings bet!een s"illed
and uns"illed !or"ers risen in recent years%
'nternational trade has altered the relatie deand
for s"illed and uns"illed labor. *hanges in technology hae altered the relatie
deand for s"illed and uns"illed labor.
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A%i"it() E!!ort) and C*anc
atural ability is iportant for !or"ers in all
occupations.
6any personal characteristics deterine ho!
productie !or"ers are and, therefore, play arole in deterining the !ages they earn.
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An A"trnati' +i, o! Ed$cation- Signa"ing
7irs use educational attainent as a !ay of
sorting bet!een highability and lo!ability
!or"ers.
't is rational for firs to interpret a college degreeas a signal of ability.
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T* S$prstar .*nomnon
Superstars arise in ar"ets that e1hibit the
follo!ing characteristics8
Eery custoer in the ar"et !ants to en-oy the
good supplied by the best producer. The good is produced !ith a technology that a"es
it possible for the best producer to supply eery
custoer at a lo! cost.
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A%o'/E0$i"i%ri$m Wags- Minim$m/WagLa,s) Unions) and E!!icinc( Wags
#hy are soe !or"ers) !ages set aboe theleel that brings supply and deand into
e(uilibriu%
6iniu!age la!s
6ar"et po!er of labor unions
Efficiency !ages
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A%o'/E0$i"i%ri$m Wags- Minim$m/WagLa,s) Unions) and E!!icinc( Wags
Unions
union is a !or"er association that bargains !ith
eployers oer !ages and !or"ing conditions.
Stri"e strike refers to the organi9ed !ithdra!al of labor
fro a fir by a union.
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A%o'/E0$i"i%ri$m Wags- Minim$m/WagLa,s) Unions) and E!!icinc( Wags
Efficiency #ages
The theory of efficiency wages holds that a fir can
find it profitable to pay high !ages because doing
so increases the productiity of its !or"ers. +igh!ages ay8
reduce !or"er turnoer.
increase !or"er effort.
raise the (uality of !or"ers that apply for -obs at the
fir.
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T#E ECONOMICS OFDISCRIMINATION
Discrimination occurs !hen the ar"etplaceoffers different opportunities to siilar
indiiduals !ho differ only by race, ethnic
group, se1, age, or other personalcharacteristics.
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T#E ECONOMICS OFDISCRIMINATION
lthough discriination is an eotionallycharged topic, econoists try to study the topic
ob-ectiely in order to separate yth fro
reality.
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Mas$ring La%or/Mar1t Discrimination
Discriination is often easured by loo"ing atthe aerage !ages of different groups.
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Mas$ring La%or/Mar1t Discrimination
Een in a labor ar"et free of discriination,different people hae different !ages.
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Mas$ring La%or/Mar1t Discrimination
/eople differ in the aount of huan capitalthey hae and in the "inds of !or" they are
!illing and able to do.
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Mas$ring La%or/Mar1t Discrimination
Siply obsering differences in !ages aongbroad groups:!hite and blac", en and
!oen:says little about the prealence of
discriination.
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Ta%" 2 Mdian Ann$a" Earnings %( Rac and S3
Copyright2004 South-Western
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Mas$ring La%or/Mar1t Discrimination
ecause the differences in aerage !agesaong groups in part reflect differences in
huan capital and -ob characteristics, they do
not by theseles say anything about ho!uch discriination there is in the labor
ar"et.
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Discrimination %( Emp"o(rs
7irs that do not discriinate !ill hae lo!erlabor costs !hen they hire the eployees
discriinated against.
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Discrimination %( Emp"o(rs
ondiscriinatory firs !ill tend to replacefirs that discriinate.
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Discrimination %( Emp"o(rs
*opetitie ar"ets tend to liit the ipact ofdiscriination on !ages.
7irs that do not discriinate !ill be ore
profitable than those firs that do discriinate.
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Discrimination %( C$stomrs andGo'rnmnts
lthough the profit otie is a strong forceacting to eliinate discriinatory !age
differentials, there are liits to its correctie
abilities. *ustoer preferences
;oernent policies
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Discrimination %( C$stomrs andGo'rnmnts
*ustoer preferences8 'f custoers hae discriinatory preferences, a
copetitie ar"et is consistent !ith a
discriinatory !age differential. This !ill happen !hen custoers are !illing to pay
to aintain the discriinatory practice.
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Discrimination %( C$stomrs andGo'rnmnts
;oernent policies8 #hen the goernent andates discriinatory
practices or re(uires firs to discriinate, this ay
also lead to discriinatory !age differentials.
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S$mmar(
#or"ers earn different !ages for any reasons.
To soe e1tent, !age differentials copensate
!or"ers for -ob attributes.
#or"ers !ith ore huan capital get paid
ore than !or"ers !ith less huan capital.
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S$mmar(
The return to accuulating huan capital ishigh and has increased oer the past decade.
There is uch ariation in earnings that cannot
be e1plained by things econoists can easure.
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S$mmar(
The une1plained ariation in earnings is largelyattributable to natural ability, effort, and chance.
Soe econoists hae suggested that ore
educated !or"ers earn higher !ages because!or"ers !ith high natural ability use education
as a !ay to signal their high ability to
eployers.
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S$mmar(
#ages are soeties pushed aboe thee(uilibriu leel because of iniu!age
la!s, unions, and efficiency !ages.
Soe differences in earnings are attributable todiscriination on the basis of race, se1, or other
factors.
#hen easuring the aount of discriination,one ust correct for differences in huan
capital and -ob characteristics.
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S$mmar(
*opetitie ar"ets tend to liit the ipact ofdiscriination on !ages.
Discriination can persist in copetitie
ar"ets if custoers are !illing to pay ore to discriinatory firs,
or if the goernent passes la!s re(uiring firs to
discriinate.