Matakuliah
Tahun
: J0114-Teori Ekonomi
: 2009
WAGE DETERMINATION
Pertemuan 21
Labor Wages and Earnings
•
•
•
•
•
Bina Nusantara University
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
3
Purely Competitive Labor Market
•
•
•
•
Market Demand for Labor
Market Supply for Labor
Labor Market Equilibrium
MRP = MRC Rule
Graphically…
Bina Nusantara University
4
Purely Competitive Labor Market
Labor Market
Individual Firm
S
($10)
WC
Wage Rate (Dollars)
Wage Rate (Dollars)
a
($10)
WC e
D=MRP
(∑ mrps)
b
s=MRC
d=mrp
c
0
QC
(1000)
Quantity of Labor
Bina Nusantara University
0
qC
(5)
Quantity of Labor
5
Monopsony Model
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•
•
•
O 26.1
Monopsony
Upward-Sloping Labor Supply to Firm
MRC Higher Than the Wage Rate
Equilibrium Wage and Employment
Graphically…
Bina Nusantara University
G 26.2
6
Monopsony Model
Monopsonistic Labor Market
Wage Rate (Dollars)
MRC
b
a
Wc
Wm
0
Bina Nusantara University
S
c
Qm
MRP
Qc
Quantity of Labor
Examples of Monopsony Power
7
Three Union Models
• Demand Enhancement Model
Wage Rate (Dollars)
– Increase Product Demand
– Increase Productivity
– Alter the Price of Other Inputs
Bina Nusantara University
S
Increase
In Demand
Wu
Wc
D2
D1
Qc
Qu
Quantity of Labor
8
Three Union Models
• Exclusive or Craft Union Model
–
–
–
–
–
–
Restricted Immigration
Reduced Child Labor
Encouraged Compulsory Retirement
Shorter Hour Workweek
Exclusive Unionism
Occupational Licensing
Graphically…
Bina Nusantara University
9
Three Union Models
• Exclusive or Craft Union Model
Wage Rate (Dollars)
S2
S1
Decrease
In Supply
Wu
Wc
D
Qu
Bina Nusantara University
Qc
Quantity of Labor
10
Three Union Models
• Inclusive or Industrial Union Model
– Inclusive Unionism
Wage Rate (Dollars)
S
Wu
a
b
e
Wc
D
Qu
Qc
Qe
Bina Nusantara University
11
Quantity of Labor
Three Union Models
• Wage Increases and Unemployment
• Average 15% Higher Wages
• Reduced Employment Levels Corrected
by:
– Growth
– Elasticity
Bina Nusantara University
12
Bilateral Monopoly
• Indeterminate Outcome
• Desirability of Bilateral Monopoly
S
Wage Rate (Dollars)
MRC
Wu
a
Wc
Wm
D=MRP
Qu=Qm
Bina Nusantara University
Qc
Quantity of Labor
13
Minimum Wage
•
•
•
•
Case Against the Minimum Wage
Case For the Minimum Wage
State and Locally Set Rates
Evidence and Conclusions
Bina Nusantara University
14
Wage Differentials
Average Annual Wages in Selected
Occupations, 2005
Occupation
Surgeons
Bina Nusantara University
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
Annual Average Wages
$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
15
Wage Differentials
• Marginal Revenue Productivity
• Noncompeting Groups
– Ability
– Education and Training
• Human Capital
O 26.2
• Compensating Differences
Bina Nusantara University
16
Wage Differentials
Education Levels and Individual Annual Earnings
160,000
Annual Earnings (Thousands of Dollars)
Educational
Attainment
Bina Nusantara University
140,000
120,000
Professional Degree
100,000
80,000
Bachelor’s Degree
60,000
Associate’s Degree
40,000
20,000
High School Diploma
0
18-24
25-34
35-44
Age
45-54
55-64
65+
17
Wage Differentials
• Marginal Revenue
• Market Imperfections
–
–
–
–
Bina Nusantara University
Lack of Job Information
Geographic Immobility
Unions and Government Restraints
Discrimination
18