The Role of
Labor
Chapter 9 Notes
How are wages
determined?
Section 1

The price of Labor is Wages – the payments workers
receive in return for work

Governed by the forces of supply and demand.

Equilibrium wage – the wages at which the quantity of
workers demanded equals the quantity of workers
supplied; the market price for labor
Demand for Labor

A business hires workers to help it produce
goods or provide a service.

A producers demand for labor is therefore a
Derived demand – a demand for a product
or resource based on its contribution to the
final product.

Workers with higher productivity earn higher
wages.

Demand and Supply Curves for Labor

Demand for labor is like any other product –
when price goes up, quantity demanded
goes down.
Supply of Labor

More workers are willing to work at higher
wages than lower wages.


Equilibrium Wage – is reached just like it is
with the price of other products
Why do wage rates differ?

Different jobs have different Wage rates –
the established rate of pay for a specific job
or work performed.

Wage rates are determined by supply and
demand, which in turn are influenced by four
key factors: 1 - Human capital – the
knowledge and skills that enable workers to
be productive; 2 working conditions; 3 –
discrimination in the workplace; 4 –
government actions.
1 - Human Capital –

Economist group workers by the amount of human capital they
have.

Unskilled Workers – house cleaners, sanitation workers

SemiSkilled workers – construction workers, clerical workers

Skilled Workers – plumbers and electricians – specialized training

Professional Workers – doctors, lawyers – intensive professional
training – the highest human capital

The demand for higher skilled workers is high and therefore they
can demand higher salaries. The prospect of higher wages leads
many people to invest in their human capital, and enroll in
vocational education, specialist training, and higher education.
2 – Working Conditions

Higher wages are often paid to workers in
dangerous and unpleasant occupations in
order to attract qualified people to those
jobs. The advantages of some jobs make
up for lower wages.
3 – Discrimination

Wage discrimination may be based on may be based on race,
ethnicity, or other factors. Women on average make less than
men. Prejudice.

Employers may miss out on the best employees if they
discriminate.

Occupational segregation – some low-paying jobs come to be
seen as belonging to the realm of women or certain minorities;
groups can become trapped in these jobs, unable to earn enough
to invest in human capital to move them upward.

Antidiscrimination laws - Equal Pay Act (1963), Civil Rights Act
(1964)

Glass ceiling – an unseen, artificial barrier to advancement that
women and minorities sometimes face
4 – Government Actions

The government steps in when market
forces produce results people disagree with.

Minimum wage – the lowest amount,
established by law, that an employer may
pay a worker for one hour of work.

Market forces may set a wage too low for
anyone to make a living doing a particular
job.

Some states and localities have set
minimum wages higher that the federal
minimum wage.
Trends in Today’s
Labor Market
Section 2

In the 1950’s companies hired workers with the
expectation that they would work for the same company
for their entire lives and be provided with a pension for
their retirement.

Today, few workers will work for the same company for
their entire careers and workers must take responsibility
for their own retirement.

Civilian labor force – people aged 16 or older who are
employed or actively looking for and available for work

2005 – 150, 000,000 Americans

2020 – 165, 000,000
Changes in the U.S. Labor
Force

More women in the labor force since the
50’s.

The kinds of jobs open to women have
expanded.

Wages for women have risen.

Better educated. 30% have college degrees,
30% have some college.
Changing Occupations


Three sectors of occupations:

Primary Sector – jobs related to natural resources –
farming, forestry, fishing, mining;

Secondary Sector – jobs related to production of goods
including the materials and energy needed to produce
them- welders, construction, truck drivers

Tertiary sector – service related jobs – banking,
insurance, retail, education, communications
Manufacturing jobs in the US have declined since the
1950’s and service sector jobs have increased.
Technology and Change

Technology has eliminated or redefined
many jobs in all three occupational sectors.

About half of all Americans use a computer
on the job. Those occupations that support
computers, data, networking have
increased.
Globalization and Jobs

Technology allows companies to employ people all over
the world.

Outsourcing – the practice of contracting with an outside
company, often in a foreign country, to provide goods or
services; saves money.

Many companies add more jobs in the US than they
outsource overseas.

The US economy also benefits from Insourcing – the
foreign companies establishing operations in, and
therefore bringing jobs to, the United States.
Changes in the way people
work

Telecommuting – the practice of doing office work in a
location other than the office

Companies have fewer permanent positions and
have more Contingent employment – temporary or
part-time work.

Many people work as Independent contractors –
someone who sells his or her services on a contract
basis.

Today, most people will change careers several times
as the world of work continues to evolve.
Working at the office from
Home.

Reduced stress; flexibility in work time; avoiding the
commute to work.

Expanded labor pool, increased productivity, lower real
estate cost.

Fewer commuters, less pollution.

Telecommuting grew by 20% each year from 2000 to
2005.
Alternatives to Permanent
Employment

Hiring contingent workers make it easier for a business
to adjust their workforce. Discharging temporary
workers is easier than fulltime employees.

Most temporary worker don’t receive benefits, so they
cost less.

Many workers enjoy being their own boss as contract
workers.

Sometimes permanent positions are offered to
temporary workers who do a good job.
Changing Careers More
Often

Much of the work done in the US and other advanced
counties did not exist 100 years ago.

Technology creates new jobs and makes some jobs
obsolete. Workers must learn and adapt to new
technology.

Change in the economy is constant and rapid.
Organized Labor in
the United States
Section 3
Labor Movement’s Rise to
Power

Organized labor helped shape the modern workplace.

Eight-hour work day, five-day work week, vacations, sick leave

Labor union – an organization of workers that seeks to improve
wages, working conditions, fringe benefits, job security, and other
work-related matters for its members.

Unions negotiate with businesses to achieve their goals.

To demonstrate their power they will turn to a Strike – a work
stoppage used to gain negotiating power while attempting to convince
an employer to improve wages, working conditions, or other workrelated matters.

Craft unions –

Industrial unions –
Early Developments

First national federation – National Trade Union 1834, ended 1837.

1869 Knights of Labor – organized by industry, not trade or skill level,

During industrialization, employers resisted the efforts of workers to
organize; violence.

1886 - Haymarket Square bombing and riot. Police and protestors killed
and wounded.

1892 – 10 workers killed in a strike against Carnegie steel in Homestead,
Penn.

1894 – Pullman Palace Railway strike; National Guard troops brought in
to keep the nations railways moving; violence.

1886 – Samuel Gompers – founded the American Federation of Labor
(AFL); economic empowerment for workers and backed pro-union
candidates.
Unions Gain Power

Labor legislation passed as part of the New Deal

1932 – Norris-LaGuardia Act – outlawed the practice
of only hiring workers that agreed to not join unions. It
required employers to allow workers to organized with
out interference

1935 – National Labor Relations Act – protected the
rights of workers in the private sector to form unions
and use strikes.

1938 – Fair Labor Standards Act – set a minimum
wage, required extra pay for overtime work, made
most child labor illegal.
The Labor Movement’s
Steady Decline

Backlash Against Unions Following WWII

Fear of Communism lead to further
restrictions on unions.

Union membership has fallen to about 12.5
% in 2005.

The decline of unions can be traced to
union’s tarnished reputations, changes in the
labor force, and laws restricting union
membership.
Loss of Reputation

Prolonged strikes lead to disruption of the
public and placed a burden on striking
families.

Increasing costs; ties to organized crime.
Labor Force Changes

Union membership has usually been linked
to manufacturing jobs. As the number of
manufacturing jobs has decreased, so has
union membership. Temporary and
contingent workers are not usually union
members either.

SEIU has focused on recruiting service
workers like janitors and caregivers.
Right-to-Work Laws

Some legislation tries to limit union membership

Closed shop – a business in which and employer can
hire only union members

Union shop – a business in which workers are required
to join a union within a set period of time after being
hired

The Taft-Hartley Act outlawed the closed shop and
weakened the possibilities of the union shop.

Some states have passed Right-to-work laws –
legislation that makes it illegal to require workers to join
unions.
Union Negotiating Methods

Collective bargaining – the process of negotiation
between a business and its organized employees to
establish wages and improve working conditions. Unions
wield more negotiating power than an individual worker.

Binding arbitration – a process by which an impartial third
party resolves disputes between management and unions

For industries related to public safety, the government
may get involved to halt a work stoppage if it feels that
protest activities may interfere with public safety.