Chapter 8: Wages, Rent,
Profit, and Interest
Chapter Focus:

The factors that affect wages, including productivity, education,
experience, job conditions, regional disparities, market power,
and discrimination

The types, structure, collective bargaining practices, and impact
of labour unions in Canada

Rent, the market for land, the equilibrium value of land rent, and
changes in demand for land

Profit, and the functions it serves

Interest, how it’s determined, the market for loanable funds, how
the forces of demand and supply affect loanable funds, and the
factors that determine the interest rate for an individual loan
Wages:
Wage: generally to include salaries and other forms of payment of labour
Wage Determinants:

Labour productivity: It determines the wage of workers. The output of each
worker varies because of such factors as the worker’s ability to do the job, the
use of complementary resources, and the state of technology

Education: It has impact on labour demand and supply. Work that required jobrelated training tends to have a higher MRP.


Human Capital: the income-earning potential of a person’s skills and knowledge
Experience: it can increase productivity, pushing up the demand for the worker’s
labour and the wage rate. Higher Exp, higher wage

Seniority Right: the workplace privileges provided to workers who have the longest
experience with their employer

Job conditions: for less appealing occupations, employers offer higher wages

Regional disparities:
Market power:

Labour Unions: workers’ organizations that negotiate with
employers about wages, working conditions, and job
benefits
Discrimination:


Job Discrimination: hiring, wage, and promotion decisions
based on criteria other than a worker’s credentials or
performance. Ex: gender, race, age, physical ability
Job Segregation: the discriminatory division of occupation
Labour Unions:
Industrial union:

a labour union of workers in a certain industry, no
matter what their occupations
Craft union:

a labour union of workers in a particular
occupation
The Structure of Labour Unions:
1.
Union Locals:

Unionized workers in a certain factory, company, or geographical area

Closed shop: a specific labour market in which all workers covered by a
collective agreement must be union members

Union shop: a specific labour market in which all workers covered by a
collective agreement must become union members after a certain period of
employment

Open shop: a specific labour market in which union membership is not
compulsory
2.
National and International Unions
3.
Federations and Congresses
Collective Bargaining:
Collective Bargaining:
 The process of union representatives negotiating with employers
over workers’ wages, hours, and working conditions
Mediation:
 The process of having an outside party determine and propose a
settlement to employers and unions
Arbitration:
 The process of having an outside party determine and dictate a
settlement to employers and unions
Working to rule:
 The union tactic of members slowing down working by adhering
strictly to their job descriptions
Strike:

The union tactic of members ceasing to work
Picketing:

The practice of striking workers taking positions around the
outside of the workplace, usually with signs, to publicize
their cause to others
Lockout:

The employer tactic of barring workers from the workplace
Profit:
Profit:

A positive economic profits is the income paid to owners of
a business after all other resource payments have been
made
Return on Risk-Taking:

Businesses initiate change but are themselves affected by
external changes
Measure of Effectiveness:
Source of Funds
Interest:
Principal:

The amount of a loan, excluding interest
Interest:

The payment to a lender for use of money loaned
Interest Rate:

The percentage rate with which interest on loans
is determined
The loanable Funds Market:
Loanable funds:

All the monies made available to lenders by
borrowers
Bond:

A contract between a borrower and the holder of
the contract that entitles the holder to interest plus
repayment at the maturity date
Demand for Loanable Funds:
Real capital:

Assets such as buildings, equipment, and materials used by businesses to
produce goods and services
Depreciation:

The decrease in value of durable real assets over time
Financial capital:

Assets in the form of cash, bonds, and shares
Share:

Partial ownership of a corporation, which entitles the shareholder to
dividends and, hopefully, a profit once the share is sold; also called a stock
Range of Interest Rates:
Credit Risk:

the assessed likelihood of a borrower not repaying a loan
Loan Period:


The longer the time, the higher the interest rate
The shorter the time, the lower the interest rate
Collateral:

Assets pledged by a borrower as security against a loan; these assets can
be seized b the lender if the loan is not repaid
Size of the Loan:

The larger the loan, the lower its interest rate
Shares of Total Income:
Net domestic income:

The total income earned by Canada’s households
1.
Wages and Salaries
2.
Corporate profits
3.
Interest income
4.
Proprietors’ incomes and rent