The Role of Labor
Dr. T. D. Mitchell
Bonneville High School
Idaho Falls, Idaho
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
The Role of Labor
 Concept Review
 Labor productivity is the value of the goods or services a worker can
produce in a set amount of time.
 Chapter 9 Key Concept
 Labor, the human effort used to produce goods and service, is subject
the same forces of demand and supply that govern the rest of the
economy.
 Why the Concept Matters
 The value of your labor depends on the demand for what you do and
the supply of other people able to do the same thing.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
How are Wages Determined?
Section 1
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Labor: Demand and Supply
 We have learned about the four
factors of production: land, labor,
capital, and entrepreneurship.
 Each one has a price that must
be figured into production costs.
 The price for labor is wages, the
payments workers receive in
return for their work.
 Wages, just like the other factors
of production, are governed by
the forces of supply and demand.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Labor: Demand and Supply
 An equilibrium wage is the wage
at which the number of workers
needed equals the number of
workers available.
 An equilibrium wage produces
neither a surplus nor a shortage of
workers.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Demand for Labor
 In a competitive market, wages
reflect a worker’s productivity.
 A business hires workers to help
produce goods and services.
 A producer’s demand for labor is
called derived demand.
 A demand for a product or
resource because of its
contribution to the final product.
 Workers with higher productivity
tend to earn higher wages.
 Demand for labor depends in
part on the demand for the
product.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Supply of Labor
 Worker’s point of view.
 Many workers leave jobs to take
better paying jobs.
 For this reason, the supply curve
for labor is upward slopping.
 Since wages are the price of
labor, they too gravitate toward
equilibrium.
 High wages produce a greater
supply of labor; low wages give
workers less incentive to work.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Why Do Wage Rates Differ?
 Different jobs have different wage rates, the rates of pay for specific
jobs or work performed.
 Wages are determined by supply and demand, which in turn are
influenced by four key factors:
 Human Capital
 Working Conditions
 Discrimination in the workplace
 Government actions
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Trends in Today’s Labor Market
Section 2
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
The Changing Labor Force
 U. S. labor force has changed
dramatically since the 1950s.
 In the 1950s workers stayed with
the same company until
retirement.
 Today, few workers stay with the
same company their entire
career.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
The Changing Labor Force
 Civilian labor force, people who
are 16 or older who are
employed or actively seeking for
and available for work.
 The civilian labor force excludes
people in the military, in prison, or
in other institutions.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Changes in the U. S. Labor Force
 1955 family
 2013 family
 Women in workforce has increased.
 Opportunities for women in the labor market has expanded.
 As job opportunities have improved, wages for women have risen, and many
more women have been drawn to the work force.
 The U. S. work force has also become better educated.
 About 30% of people in the labor force have a college degree.
 An additional 30% have some college credits.
 With such a high degree of human capital, productivity and wages are
also high compared to many other nations.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Economic Sectors
Primary Sector
Directly related to natural resources.
Secondary Sector
Related to production.
Tertiary Sector
Service related jobs.
 All of the ten fastest-growing occupations are service related
 Most of them in the area of medical services.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Employment in U. S. by Sector
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Technology and Change
 Gas station attendants have
been replaced by computerized
self-serve, credit card operated
gas pumps.
 ATMs have greatly affected the
occupation of bank teller.
 Technology changes have
eliminated or redefined many
other jobs in all three sectors.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Globalization and Jobs
 Today’s job market is global.
 Technology allows companies to employ people not just around the
country, but around the world.
 Many companies cut costs by outsourcing.
 Most outsourcing in the U. S. goes to other U. S. companies.
 Outsourcing has become connected with the practice of moving jobs to
foreign countries.
 Many companies actually add jobs in the U. S. when they outsource abroad.
 The American economy has also benefited from insourcing, the practice of
foreign countries establishing operations in the U. S.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Changes in the Way People Work
 Telecommuting
 Working from home.
 Contingent employment
 Alternatives to permanent
employment.
 Independent contractors
 Changing careers more often.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Organized Labor in the U. S.
Section 3
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Labor’s Rise to Power
 Organized labor helped shape
the modern workplace.
 Most of the benefits workers take
for granted today did not exist
200 years ago.
 Eight-hour days
 Five-day workweek
 Vacations
 Sick leave
 A big change from the workers of
the 1800s.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Labor’s Rise to Power
 To improve their bargaining
power factory workers began to
join together and act as a group.
 A labor union is an organization of
workers who collectively seek
better condition.
 Unions attempt to negotiate with
businesses to achieve their goals.
 When businesses resisted, union
looked for ways gain negotiating
power.
 Strikes
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Union History in the U. S.
 Local craft unions were the main
sort of worker association in early
U. S. history.
 Local unions began to join
together, by the 1830s, into
federations.
 In 1869, the Knights of Labor.
Organized by industry, not by
trade or skill level.
 Nationwide union
 Adopted political goals
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Union History in the U. S.
 During the explosion of
industrialism in the late 1800s,
employers strongly resisted the
efforts of workers to organize.
 Many protests became violent.
 1886, one killed and several
injuries at the McCormick
Harvester Company in Chicago.
 1892, ten workers killed in
Homestead, PA.
 1894, Pullman Palace Car
Company helped close many of
the nation’s railroads.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
A New Model for Unions
 Most people were repulsed by
the violence and controversial
political agenda of the unions.
 Samuel Gompers, American
Federation of Labor, focused on
skilled labor.
 The AFL focused on economic
power instead of through
legislation.
 1.7 million members
 Women began to organize.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Unions Gain Power
 1930s, union membership declined as many people lost their jobs.
 Yet, unions gained power through a series of reforms in the New Deal.
NorrisLaGuardia
Act
Wagner Act
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Fair Labor
Standards Act
Unions Gain Power
 During the 1930s, the Congress of
Industrial Organizations (CIO)
organized unions for industrial
workers.
 Originally part of the American
Federation of Labor (AFL).
 Favored craft unions.
 The two unions broke apart in
1938. Then, Re-united in 1955 as
AFL-CIO.
 AFL succeeded in organizing the
United Auto Workers (UAW).
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Backlash Against Unions After WW2
 The end of WW2 ushered in a
period of anti-union legislation.
 1947, over the veto of President
Truman, the Taft-Hartley Act was
passed to amend the Wagner
Act.
 Fear of communism led to further
restrictions on unions.
 Landrum-Griffin Act
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Steady Decline of Labor Movement
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Steady Decline of Labor Movement
 For 30 years following WW2, labor unions represented 30 percent of the U. S.
workforce.
 Since the mid-1970s memberships in unions has declined steadily.
 Falling to 12.5 percent in 2005.
 The decline can be traced to causes:
Loss of Reputation
• Prolonged strikes
• Featherbedding
Changes in the Labor Force
• Manufacturing jobs have declined
• Increase in service jobs; as well as contract employees
Right-To-Work Laws
• Legislation that tries to limit union influence.
• Laws
requiring
Economics: Concepts and Choices.
Holt against
McDougal, 2011.
Chapter 9 workers to join unions.
Union Negotiating Methods
 Unions continue to use collective
bargaining to wield power.
 Unions negotiate for job security,
and fringe benefits, like health
insurance. They bargain against
pay cuts, and reductions in
benefits.
 Strikes or work stoppages have
been severely cut down,
because management is willing
to replace workers or close down
plants permanently.
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Collective Bargaining
 The vast majority of union
contracts are settled without
strikes or stoppages.
 Some negotiations require
additional interventions:
 Mediator
 Binding arbitration
 Injunction
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
A Collective Bargaining Example
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9
Any questions?
Economics: Concepts and Choices. Holt McDougal, 2011. Chapter 9