Chap08 fundamental economic concepts

As you read this unit, learn how the study ofeconomics helps answer the following questions:

Why are deductions taken out of yourpaycheck?

How do taxes pay for your education?

Why does your savings account probablyearn less than other investments?

CHAPTER 8

Employment, Labor, and WagesCHAPTER 9

Sources of Government RevenueCHAPTER 10

Government SpendingCHAPTER 11

Money and BankingCHAPTER 12

Financial Markets

190 UNIT 3 MACROECONOMICS: INSTITUTIONS

To learn more about macroeconomics through infor-mation, activities, and links to other sites, visit theEconomics: Principles and Practices Web site atepp.glencoe.com

Macroeconomics deals with the totalperformance of the economy.

http://epp.glencoe.com

What level of income

do you want to earn

after you graduate? Will your

current training and skills allow

you to reach your income goal?

In Chapter 8, you will learn

about the labor force and

employment issues. To learn

more about important labor

issues, view the Chapter 14

video lesson:

The American Labor Force

Chapter Overview Visit the Economics: Principlesand Practices Web site at epp.glencoe.com andclick on Chapter 8—Chapter Overviews to previewchapter information.

Labor is human resources—people whoproduce goods and services.


The Labor Movement

Main IdeaLabor unions are organizations that attempt toimprove the working conditions of their membersthrough joint action.

Reading StrategyGraphic Organizer As you read the section, comparehow an industrial union differs from a trade union.Complete a graphic organizer similar to the onebelow by listing the differences.

Key Termsmacroeconomics, civilian labor force, craft union,trade union, industrial union, strike, picket, boycott,

lockout, company union, Great Depression, right-to-work law, independent union

ObjectivesAfter studying this section, you will be able to:1. Explain why unions are still important today.2. Discuss the development of the labor movement

from the late 1700s to the 1930s.3. Relate labor’s successes during the Great

Depression.4. Describe the major labor developments since

World War II.

Applying Economic ConceptsCivilian Labor Force Do you have a part-time job? Ifso, read to find out more about your role in the civil-ian labor force.

Cover Story

N.F.L. Officials Approve Pact …

N.F.L. game offi-

cials voted yesterday

to accept a new con-

tract that the league

had recently offered,

ending a lockout dur-

ing which replace-

ments officiated N.F.L.

games for the first

time….A majority of the 119 officials ratified the contract,

which league and union officials had agreed to on

Monday….The contract, which is good for four years

with an option for six, gives the officials a 50 percent

raise this season and a 100 percent raise by the fourth

year….Many coaches, fans and players had scoffed at the

idea of a lockout, but the league ended up using 15

replacement officiating crews, with many of them

pulled from below the Division I-A college level.

—The New York Times, September 20, 2001

Replacement officialsignals an extra point.

Industrial Union Trade Union

Labor issues, like the one discussed in the coverstory, appear in the news all the time. Afterall, working for a living is one of the single

most important things we do. How well we do, asmeasured by the satisfaction we get and the incomewe receive, affects virtually every other aspect of ourlives. Accordingly, any study of economics thatignores the way the “labor” factor of productionearns its income would be incomplete.

The study of labor is part of macroeconomics.Macroeconomics is the branch of economics thatdeals with the economy as a whole, includingemployment, gross domestic product, inflation,economic growth, and the distribution of income.For example, the population of the United Statesby mid-2003 was approximately 291 million peo-ple. Slightly less than half, or about 146 million,belonged to the civilian labor force—men andwomen 16 years old and over who are either work-ing or actively looking for a job. The civilian clas-sification excludes members of the armed forces,the prison population, and other institutionalizedpersons.

CHAPTER 8: EMPLOYMENT, LABOR, AND WAGES 193

193_GLENEPP 10/17/03 10:33 AM Page 193

As you examine Figure 8.1, note that about 85percent of those employed had no connectionwith unions, 13.2 percent were members ofunions, and 1.4 percent were nonunion membersbeing represented by unions. Although the per-centage of union workers is small, unions areimportant for two reasons. First, they played amajor role in promoting legislation that affectspay levels and working conditions today. Second,unions are a force in the economy, with member-ship of over 16 million people.

Historically, unions tended to be concentrated inheavy manufacturing industries. More recently,unions have made inroads in the service sector, espe-cially among government workers. As Figure 8.2shows, 42 percent of all government workers wereeither members of a union or represented by aunion.

Early Union DevelopmentThe development of unions in the UnitedStates started in the colonial period. From

there, unions waged a long uphill struggle thatpeaked in the 1930s.

Colonial Times to the Civil WarIn 1778, printers in New York City joined

together to demand higher pay. This protest wasthe first attempt to organize labor in America.Before long, unions of shoemakers, carpenters,and tailors developed, each hoping to negotiateagreements covering hours, pay, and working con-ditions. While only a very small percentage ofworkers belonged to unions, most unions werecomprised of skilled workers and possessed strongbargaining power.

Until about 1820, most of America’s workforcewas made up of farmers, small business owners, andthe self-employed. Shortly after, however, immi-grants began to arrive in great numbers. Because theyprovided a supply of cheap, unskilled labor, theyposed a threat to existing wage and labor standards.

Even so, public opinion was against union activ-ity and some parts of the country even bannedlabor unions. Labor organizers often were viewedas troublemakers, and many workers believed they

could better negotiate with their employers on aone-to-one basis.

Civil War to the 1930sDuring and after the Civil War, attitudes toward

unions began to change. The Civil War led tohigher prices, a greater demand for goods and serv-ices, and a shortage of workers. Industry expanded,and the farm population declined. Hourly workersin industrial jobs made up about one-fourth of thecountry’s working population. Many of the cul-tural and linguistic differences between immi-grants and American-born workers began to fade,and the labor force became more unified.

Types of UnionsBy the end of the Civil War, two main types of

labor unions had come into existence. One was


Figure 8.1Figure 8.1Figure 8.1Figure 8.1

Using Graphs Most workers are not affiliated with unions. What is the ratio of nonunion-Using Graphs Most workers are not affiliated with unions. What is the ratio of unionto nonunionizedworkers?

Employment and Union Affiliation

Source: Bureau of Labor Statistics, 2003

UnionizedWorkers13.2%

NonunionizedWorkers85.4%

WorkersRepresentedby Unions

1.4%

Visit epp.glencoe.com and click onTextbook Updates—Chapter 8 foran update of the data.

194_GLENEPP 10/17/03 10:34 AM Page 194


the craft union, or trade union, an association ofskilled workers who perform the same kind ofwork. The Cigar Makers’ Union, begun by unionleader Samuel Gompers, is an example of this typeof union. Other, more recent examples are shownin Figure 8.3 on page 197.

The second type of union was the industrialunion—an association of all workers in the sameindustry, regardless of the job each worker per-forms. The development of basic mass-productionindustries such as steel and textiles provided theopportunity to organize this kind of union.Because many of the workers in these industrieswere unskilled and could not join trade unions,they organized as industrial unions instead.

Union ActivitiesUnions tried to help workers by negotiating for

higher pay, better hours and working conditions,and job security. If an agreement could not bereached, workers could strike, or refuse to workuntil certain demands were met. Unions also pres-sured employers by having the striking workerspicket, or parade in front of the employer’s busi-ness carrying signs about the dispute. The signsmight ask other workers not to seek jobs with thecompany, or they might ask customers and suppli-ers to take their business elsewhere.

If striking and picketing did not settle the dis-pute, a union could organize a boycott—a massrefusal to buy products from targeted employers orcompanies. If a boycott was effective, it hurt thecompany’s business.

Employer ResistanceEmployers fought unions in a number of ways.

Sometimes the owners called for a lockout, arefusal to let the employees work until manage-ment demands were met. Often violence eruptedduring lockouts, and troops were sometimesbrought in to keep peace. At other times, manage-ment responded to a strike, or the threat of a strike,by hiring all new workers. Some owners even set upa company union—a union organized, supported,or run by employers—to head off efforts by othersto organize workers.

Attitude of the CourtsHistorically, the courts had an unfavorable atti-

tude toward unions. Under English common law,unions were considered to be conspiracies againstbusiness and were prosecuted as such in the UnitedStates. Even the Sherman Antitrust Act of 1890,aimed mainly at curbing monopolies, was used tokeep labor in line.

E C O N O M I C SA T A G L A N C EE C O N O M I C SA T A G L A N C E Figure 8.2Figure 8.2

Union Membership andRepresentation by Industry

Industry


Representedby Unions

Percent of EmployedWorkers That Are:

Members ofUnions

Government Workers

Communications &

Public Utilities

Transportation

Construction

Manufacturing

Mining

Wholesale Trade

Services (general)

Retail Trade

Agricultural Wage &

Salary Workers

37.5

21.8

23.8

17.2

14.3

8.5

4.9

5.7

4.4

2.3

42.0

23.3

25.0

17.8

15.1

10.0

5.3

6.7

4.9

2.6

utilities, and trans-portation. I n what industries do unions have few members?

Using Tables Labor unions are most influential in the service industries, which include government, communications, public

Using Tables Labor unions are most influential in the service industries, which include government, communications, public


Visit epp.glencoe.com and click onTextbook Updates—Chapter 8 foran update of the data.

195_GLENEPP 10/17/03 10:34 AM Page 195


In 1902, the United Hatters Union called astrike against a Danbury, Connecticut, hat manu-facturer that had rejected a union demand. Theunion applied pressure on stores to not stock hatsmade by the Danbury firm. The hat manufacturer,charging a conspiracy in restraint of trade under theSherman Act, filed a damage suit in the state courtbut lost. Later, the Supreme Court ruled that theunion had organized an illegal boycott that was inrestraint of trade. This ruling dealt a severe blow toorganized labor.

The Danbury Hatters case and several subse-quent antiunion decisions pushed organized laborto call for relief. The passage of the ClaytonAntitrust Act (1914) helped to remedy the situa-tion. The Clayton Act expressly exempts laborunions from prosecution under the Sherman Act.

Labor During the Great DepressionThe Great Depression—the greatest periodof economic decline and stagnation in

United States history—began with the collapse ofthe stock market in October 1929. The economy

reached bottom in 1933, and did not recover to its1929 level until 1939.

Unemployment and WagesDuring the depths of the Depression as many as

one in four workers were without a job. Many whokept their jobs had their pay cut. In 1929, the averagemanufacturing wage was 55 cents per hour. By 1933,however, wages had plummeted to 5 cents per hour.

The Great Depression brought misery to mil-lions, but it also changed attitudes toward the labormovement. Common problems united factoryworkers, and union promoters renewed their effortsto organize workers.

Pro-Union LegislationNew legislation aided labor. The Norris-

LaGuardia Act of 1932 prevented federal courtsfrom issuing rulings against unions engaged inpeaceful strikes, picketing, or boycotts. This forcedcompanies to negotiate directly with their unions,rather than take them to court.

The National Labor Relations Act (NLRA), orWagner Act, of 1935 established the right of unionsto collective bargaining. The act also created theNational Labor Relations Board (NLRB), giving itthe power to police unfair labor practices. The NLRBalso had the power to oversee and certify union elec-tion results. If a fair election resulted in a unionbecoming the employees’ bargaining agent, employ-ers were required to recognize and negotiate with it.

The Fair Labor Standards Act (1938) applies tobusinesses that engage in interstate commerce. Theact fixes a federal minimum wage for many workersand establishes time-and-a-half pay for overtime,which is defined as more than 40 hours per week.It also prohibits oppressive child labor, whichincludes any labor for a child under 16 and workthat is hazardous to the health of a child under 18.

Labor Since World War IIMany Americans viewed organized laborfavorably in the 1930s, but public opinion

shifted again by the end of World War II. Somepeople believed that Communists had secretly


Labor Unions

Union Activities Early American labor unionshad few rights to organize. What tactics did theearly unions take to improve their working conditions?

entered the unions. Others were upset by the lossof production resulting from strikes. In 1946alone, more than 116 million workdays were lostdue to work stoppages. People began to feel thatmanagement, not labor, was the victim.

Antiunion LegislationGrowing antiunion feelings led to the Labor-

Management Relations Act, or Taft-Hartley Act, of1947. The act puts limits on what unions can do inlabor-management disputes. Among its provisions,Taft-Hartley gives employers the right to sueunions for breaking contracts, and prohibits unionsfrom making union membership a condition forhiring.

The Taft-Hartley Act had two other provisionsthat worked against organized labor. The first wasan 80-day cooling-off period that federal courtscould use to delay a strike in the case of a nationalemergency.

The second (Section 14(b)) was a tough anti-union provision, which allowed individual states topass right-to-work laws. A right-to-work law is astate law making it illegal to force workers to join aunion as a condition of employment, even thougha union may already exist at the company. If a statedoes not have a right-to-work law, new workers may

have to join the existing union as a condition foremployment shortly after being hired.

If a state has a right-to-work law, then new hireshave the option to join or not to join a union—even if the overwhelming majority of workers atthe company support the union. Lawmakers havesupported a national right-to-work law, requiringall states to give workers this option, whether thestates want to or not.

In the mid-1900s, other legislation was passed tostop the criminal influences that had begun toemerge in the labor movement. The Labor-Management Reporting and Disclosure Act, orLandrum-Griffin Act, of 1959 tried to protect indi-vidual union members from unfair actions ofunions and union officials. The act requires unionsto file regular financial reports with the govern-ment, and it limits the amount of money officialscan borrow from the union.

The AFL-CIOThe American Federation of Labor (AFL) began

in 1886 as an organization of craft unions. Later, itadded several industrial unions. The trade andindustrial unions, however, did not always agreeover the future of the union movement. As a result,eight of the AFL industrial unions formed the



Trade (Craft) and Industrial UnionsTrade (Craft) Unions Industrial Unions

Printers’Union

Machinists’Union

Electricians’Union

Carpenters’Union

Plumbers’Union

Using Charts Labor unions can be categorized as either trade or industrial unions. How do trade unions differ from industrial unions?Using Charts Labor unions can be categorized as either trade or industrial unions. How do trade unions differ from industrial unions?

Committee for Industrial Organization in 1935.Headed by John L. Lewis, president of the UnitedMine Workers of America, its goal was to bringabout greater unionization in industry.

The AFL and Lewis, however, did not get along,so the AFL expelled the Committee for IndustrialOrganization unions in 1937. Those unions thenformed the Congress of Industrial Organizations

(CIO). The CIO quickly set up unions in industriesthat had not been unionized before, such as thesteel and automobile industries. By the 1940s, theCIO had nearly 7 million members.

As the CIO grew stronger, it began to challengethe dominance of the AFL. In 1955 the AFL andthe CIO joined to form the American Federationof Labor and Congress of Industrial Organizations(AFL-CIO).

Independent UnionsAlthough the AFL-CIO is a major force, other

unions are also important in the labor movement.Many are independent unions—unions that do notbelong to the AFL-CIO, such as the Brotherhoodof Locomotive Engineers.

Checking for Understanding1. Main Idea Using your notes from the graphic

organizer activity on page 193, describe thepurpose of labor unions.

2. Key Terms Define macroeconomics, civilianlabor force, craft or trade union, industrialunion, strike, picket, boycott, lockout, com-pany union, Great Depression, right-to-worklaw, independent union.

3. Explain why unions are important today.

4. Describe several reasons for the rise of unionsprior to 1930.

5. State why unions became successful duringthe Great Depression.

6. Describe the major labor developments sinceWorld War II.

Applying Economic Concepts7. Civilian Labor Force How would your partici-

pation in the civilian labor force be affected if you joined the armed services?

8. Making Generalizations How did the majorlegislative acts discussed in the sectionreflect the rise and decline of the labormovement?

Practice and assess key social studies skills withthe Glencoe Skillbuilder Interactive Workbook,Level 2.

Labor Unions

Legislation Three sisters lead the picket line ina demonstration calling for organization of aunion. What legislation gave unions the rightto engage in collective bargaining?

Student Web Activity Visit the Economics: Principlesand Practices Web site at epp.glencoe.com and clickon Chapter 8—Student Web Activities for an activityon labor unions.



CHAPTER X: CHAPTER TITLE 199

Evaluating Primary and Secondary SourcesPrimary sources are original records of events made by people who witnessedthem. They include letters, journals, legal documents, drawings, photo-graphs, and artifacts. Secondary sources are documents created after an eventoccurred. They pull together information from many sources and provide anoverview of events.

actually deteriorate inthe years ahead despitetheir adherence to thework ethic: low-skilledimmigrants.

Between 1980 and1994, notes Enchautegui,the number of working-age immigrants in theU.S. without a highschool degree jumpedfrom 2.8 million to 5.1million—as the numberof U.S.-born high school dropouts fell sharply from20 million to 13 million. . . .

. . . The problem is that their very numbers,combined with declining demand for low-skilledworkers, are driving their wages down. . . .

—Business Week, June 7, 1999

1. When was this document published?

2. What was the general feeling of the person who wrotethis document?

3. What economic trend is the writer describing? Isinformation missing from this passage?

Learning the SkillTo interpret primary and secondary sources,

follow these steps:

• Identify the author of the document.

• Identify when and where the document was written.

• Read the document for its content.

• Identify the author’s opinions and biases.

• Determine what kind of information the docu-ment provides and what is missing.

Practicing the SkillRead the excerpt below, then answer the

questions that follow.

For the past two decades, economists andsocial observers have bemoaned the rapid growthin income inequality in the U.S. Pointing to thewidening gap between the wages of high schoolgraduates and those with college degrees, somecritics have claimed that the nation is in dangerof developing a rigid class system out of sync withtraditional American democratic values.

Lately, such concerns have abated. For onething, there has been a general upgrading ofthe labor force as more and more Americanshave graduated from high school and gone onto college. For another, low unemployment hasfinally begun to lift the wages of those at thebottom of the income ladder. Still, as a recentstudy by economist Maria E. Enchautegui ofthe University of Puerto Rico suggests, there isone group whose economic status may

Look through the letters to the editor in your localnewspaper. Prepare a report analyzing one of theletters. Summarize the article, the writer’s point ofview and frame of reference, and any primarysources cited.

Practice and assess key social studies skills with theGlencoe Skillbuilder Interactive Workbook, Level 2.

Bookstore for Russianimmigrants

ART TO COME:

Art ID and description

PhotoIDand

Cover Story

American Airlines Flight Attendants

Reject ArbitrationThe union representing flight

attendants at American Airlines

rejected an offer of arbitration

from federal mediators yester-

day, assuring the start of a 30-day

cooling-off period after which its

members will be legally free to

The major issue dividing the

two sides is pay. The flight atten-

dants now earn $15,000 to $35,000 a year, the union said.

American said that the union’s last proposal would cost the

airline $570 million more over six years than its final offer.

The union said that the gap was closer to $200 million.

—The New York Times, May 31, 2001

Resolving Union and Management Differences

Main IdeaUnions and management negotiate contractsthrough a process that is known as collectivebargaining.

Reading StrategyGraphic Organizer As you read the section, completea graphic organizer similar to the one below thatdescribes the different ways labor disputes areresolved.

Key Termsclosed shop, union shop, modified union shop, agencyshop, grievance procedure, mediation, arbitration, fact-finding, injunction, seizure

ObjectivesAfter studying this section, you will be able to:1. Explain the differences among kinds of union

arrangements.2. Describe several ways to resolve labor and manage-

ment differences when collective bargaining fails.

Applying Economic ConceptsUnion Arrangements Does the company that you oryour parents work for have a union? Read to learn moreabout the different kinds of unions that exist today.

Resolution

Over the years, many disputes have occurredbetween labor and management. Sometimesemployees take action against their

employer, as during the 1981 air traffic controllers’strike. Sometimes the employer takes action againstits employees, as in the case of the 1998–1999 NBAlockout. While the NBA was finally able to settle itsdifficulties, there are still other ways to resolve thedeadlock had they needed them.

Kinds of Union ArrangementsThe labor movement has organized workersin various ways to deal more effectively with

management. Four kinds of union arrangements arediscussed below.

Closed ShopsThe most restrictive arrangement is the closed

shop, a situation in which the employer agrees tohire only union members. In effect, this allowsthe union to determine who is hired by giving ordenying a person union membership.

200

strike. American Airlines Strike


Although this kind of union arrangement wascommon in the 1930s and early 1940s, the Taft-Hartley Act of 1947 made the closed shop illegalfor companies involved in interstate commerce.Because most firms in the United States today aredirectly or indirectly engaged in interstate com-merce, few, if any, closed shops exist.

Union ShopsThe second arrangement is the union shop, an

employment situation where workers do not haveto belong to the union to be hired, but must joinsoon after and remain a member for as long as theykeep their jobs. Today, the 22 states shown inFigure 8.4 have taken advantage of Section 14(b) topass right-to-work laws that prohibit mandatoryunion membership.

Modified Union ShopsThe third kind of arrangement is a modified

union shop. Under this arrangement, workers donot have to belong to a union to be hired and can-not be made to join one to keep their jobs. If work-ers voluntarily join the union, however, they mustremain members for as long as they hold their jobs.

Agency ShopsAnother arrangement is the agency shop—an

agreement that does not require a worker to join aunion as a condition to get or keep a job, but doesrequire the worker to pay union dues to help paycollective bargaining costs. Nonunion workers arealso subject to the contract negotiated by theunion, whether or not they agree with it. Agency


Hawaii

States with Right-to-Work Laws

MEVT

NHMA

RICTNJDE

MDVA

NC

SCGA

TN

KY

IN OH

MI

IL

MO

IA

KS

NE

SD

NDMT

WA

IDOR

AROK

LATX

NM

COUT

NV

AZ

CA

WY

MS AL

WIMN

PA

NY

FL

WV

Alaska

States without Right-to-Work Laws

Source: National Right to Work Committee, 2001

Right-to-Work, State by State

Using Maps Today, 21 states have right-to-work laws that limit the power of unions. If a state has such a law, unions cannot force workers to join the union as a condition of continued employment. Which regions have few or no states that have enacted right-to-work laws?

Using Maps Today, 22 states have right-to-work laws that limit the power of unions. If a state has such a law, unions cannot force workers to join the union as a condition of continued employment. Which regions have few or no states that have enacted right-to-work laws?


shops are primarily responsible for the 1.4 percentof employed wage and salary workers representedby unions, as shown in Figure 8.1.

Collective BargainingWhen labor and management take part incollective bargaining, representatives from

both sides meet. A group of elected union officialsrepresents workers, and company officials in chargeof labor relations represent management. Collectivebargaining requires compromise from both parties,and the discussions may go on for months.

If the negotiations are successful, both partiesagree on basic issues such as pay, working condi-tions, and benefits. Because it is difficult to antici-pate future problems, a grievance procedure—aprovision for resolving issues that may come uplater—may also be included in the final contract.Normally, union and management are able toreach an agreement. If not, other methods areavailable to resolve the differences.

MediationOne way to resolve differences is through

mediation, the process of bringing in a neutralthird person or persons to help settle a dispute.The mediator’s primary goal is to find a solution thatboth parties will accept. A mediator must be unbi-ased so that neither party benefits at the expense ofthe other. If the mediator has the confidence andtrust of both parties, he or she will be able to learnwhat concessions each side is willing to make.

In the end, the mediator recommends a com-promise to both sides. Neither side has to accept amediator’s decision, although it often helps breakthe deadlock.

ArbitrationAnother way to resolve differences is through

arbitration, a process in which both sides agree toplace their differences before a third party whosedecision will be accepted as final.

Arbitration is finding its way into areas beyondlabor-management relations as well. AmericanExpress revised the agreement it had with its creditcard holders and now requires disputes to besolved by an arbitrator rather than in the courts.This means that a credit card holder can no longersue American Express in the event of a dispute—thematter goes to arbitration instead.

Fact-FindingA third way to resolve a dispute is through

fact-finding, an agreement between union andmanagement to have a neutral third party collectfacts about a dispute and present nonbinding rec-ommendations. This process can be especially use-ful in situations where each side has deliberatelydistorted the issues to win public support, or whenone side simply does not believe the claims madeby the other side. Neither labor nor managementhas to accept the recommendations the fact-findingcommittee makes.

Injunction and SeizureA fourth way to settle labor-management dis-

putes is through injunction or seizure. During a

Are you a people person? Are youpatient, fair-minded, and persua-sive? Can you function underpressure?

The WorkLabor relations specialists formu-late labor policy, oversee indus-

trial labor relations, negotiate collective bargainingagreements, and coordinate grievance procedures tohandle complaints resulting from contract disputes.Knowledge about wages and salaries, benefits, pensions,and union and management practices is necessary.

QualificationsCourses in labor law, collective bargaining, labor eco-nomics, labor history, and industrial psychology areessential. Most often, labor relations specialists hold adegree in labor relations.

Labor Relations Specialist


dispute, one of the parties may resort to aninjunction—a court order not to act. If issuedagainst a union, the injunction may direct theunion not to strike. If issued against a company, itmay direct the company not to lock out its work-ers. In 1995, after professional baseball playersended their strike and went back to work, the own-ers promptly called a lockout. The players then gotan injunction against the owners, and the 1995baseball season began—without a labor agreement.

Under extreme circumstances, the governmentmay resort to seizure—a temporary takeover ofoperations—to allow the government to negotiatewith the union. This occurred in 1946 when thegovernment seized the bituminous coal industry.While operating the mines, government officialsworked out a settlement with the miners’ union.

Presidential InterventionThe president of the United States may enter a

labor-management dispute by publicly appealingto both parties to resolve their differences. This canbe effective if the appeal has public support. Thepresident also can fire federal workers. In 1981President Ronald Reagan fired striking air trafficcontrollers because they were federal employees

who had gone on strike despite having taken anoath not to do so.

The president also has emergency powers thatcan be used to end some strikes. When pilots fromAmerican Airlines went on strike in 1997 during apeak travel weekend, President Clinton used a 1926federal law, the Railway Labor Relations Act, toorder an end to the strike less than 30 minutes afterit began.


organizer activity on page 200, explain thepurpose of collective bargaining.

2. Key Terms Define closed shop, union shop,modified union shop, agency shop, grievanceprocedure, mediation, arbitration, fact-finding, injunction, seizure.

3. List four kinds of union arrangements.

4. Explain six ways to resolve union and man-agement differences when collective bargain-ing fails.

Applying Economic Concepts5. Union Arrangements Contact a firm in your

community that has a union. Ask if all

workers in the company are required to join,or if only some are. Based on your informa-tion, determine if the union arrangement is aclosed shop, a union shop, a modified unionshop, or an agency shop.

6. Sequencing Information If you representeda company during a collective bargainingsession, and if negotiations were dead-locked, what course of action would yourecommend? Why?

7. Making Comparisons How does voluntaryarbitration differ from mediation?


Labor and Management

Negotiating Washington, D.C., was the sceneof a major labor rally in the early 1990s. What isthe process through which unions and manage-ment negotiate contracts called?


Labor Giant:

John L. Lewis(1880–1969)

For more than four decades,John L. Lewis stood as a giant inthe American labor movement. As president of the United MineWorkers of America (UMW), hispowerful leadership and dynamicstyle made him an influential—andcontroversial—figure.

Lewis, the son of Welsh immi-grants, had little education. As ayoung man, Lewis worked in mines,earning a living by his physicalstrength and ingenuity. He latertold a convention of miners, “I have always found that if I couldnot make a living in one place, Icould in another. . . .”

As a leading figure in both theUMW and CIO, Lewis was instru-mental in using strikes and negoti-ation to benefit union workers. He succeeded in raising wages andimproving working conditions. Hisconcern for the safety and well-being of miners was a hallmark of his leadership.

Lewis was often criticized for ruling his union with an iron hand.Yet no one can deny his many con-tributions to poor workers—or thegiant role he played in U.S. laborhistory.

Acts of Courage:

Cesar Chavez(1927–1993)

“The truest act of courage,”Cesar Chavez said, “is to sacrificeourselves for others in a totally non-violent struggle for justice.” Chavezlived by these words. He foundedthe nation’s first successful unionfor agricultural workers, the NationalFarm Workers of America (NFWA),in 1962. Its goal was justice forpoor, migrant farm workers, largelyHispanic, who were among the mostexploited workers in the country.

Chavez learned about the hardlife of the migrant worker from bit-ter, early experience. He firstworked in California’s farm fieldswhen he was just ten years old.Like other migrant workers,Chavez’s family had to move towhere work could be found.

In 1965, Chavez organized astrike of migrant grape pickers inCalifornia. Later, Chavez called fora nationwide boycott of Californiagrapes. Under his slogan “Longlive the strike!” the union kept thepressure on until, in 1970, thegrape growers agreed to recognizethe union. The results? Betterworking conditions and better pay,and a long sought-after voice formigrant workers.

Today, Chavez is revered. Hislife stands as a symbol for the bat-tle for economic justice.

Examining the Profiles1. Making Comparisons What similari-

ties are there between Lewis andChavez?

2. For Further Research Find out howa clash between Lewis and PresidentHarry Truman led to a governmentseizure of mines in 1946. Write anewspaper article about the event.


Labor and Wages

Main IdeaWages differ for a variety of reasons, including skills,type of job, and location.

Reading StrategyGraphic Organizer As you read the section, completea graphic organizer similar to the one below by listingthe reasons wages differ from one region to another.

Key Termsunskilled labor, semiskilled labor, skilled labor, profes-sional labor, noncompeting labor grades, wage rate,

Wagedifferences

traditional theory of wage determination, equilibriumwage rate, theory of negotiated wages, seniority, sig-naling theory, labor mobility

ObjectivesAfter studying this section, you will be able to:1. Identify four main categories of labor.2. Explain the importance of noncompeting labor

grades.3. Describe three different approaches to wage

determination.

Applying Economic ConceptsSignaling Theory Believe it or not, diplomas havesomething in common with prices. Read to find outmore about the signals they send.

Cover Story

People Are What’s Most Important

Rhetoric aside, to-

day we live in a capi-

talist economy.Now while the word

“capitalist” often con-

jures up images of

those icons to capital-

ism—large buildings

or factories and other

symbols of worth—it is said that today’s capitalist econ-

omy is built on people.

Nobel economics prize winner Gary Becker . . .

asserted that human capital is the backbone of the

capitalist economy and he noted that in the United

States, between 17 and 25 percent of the GDP was

being spent on the field of education and career

training. . . .He also observed that around the world, advances

in technology now favored people with a greater com-

mand of knowledge and skills. . . .

—The Bangkok Post, January 27, 1999

Computer education class

T he cover story stresses that investment inhuman capital is one of the more importantinvestments we can make. The extent to

which we invest in our own level of skills, experience,and knowledge even affects the way we describe andclassify labor.

Categories of LaborThe four major categories of labor are basedon the general level of knowledge and skills

needed to do a particular kind of job. These categoriesare unskilled, semiskilled, skilled, and professional.

Unskilled LaborThose who work primarily with their hands

because they lack the training and skills requiredfor other tasks make up the category of unskilledlabor. These people work at jobs such as diggingditches, picking fruit, and mopping floors.Unskilled workers are likely to have the leastamount of human capital invested in them—andtherefore they often earn the lowest wages.


Semiskilled LaborA higher category is semiskilled labor—workers

with enough mechanical abilities and skills to oper-ate machines that require a minimum amount oftraining. These workers may operate basic equip-ment such as electric floor polishers, dishwashers,lawnmowers, and other machines that call for aminimal amount of training.

Skilled LaborSkilled labor includes workers who are able to

operate complex equipment and can perform theirtasks with little supervision. These workers repre-sent a higher investment of human capital, espe-cially in the areas of experience and training.Examples include carpenters, typists, tool and diemakers, computer technicians, chefs, and computerprogrammers.

Professional LaborThe final category is professional labor, or those

individuals with the highest level of knowledge-based education and managerial skills. Examplesinclude doctors, scientists, lawyers, and corporate

executives. These people usually have invested themost in their own human capital, and normallyearn some of the highest incomes.

Noncompeting Labor GradesWorkers in one labor category generally donot compete with those in another category.

For example, unskilled workers do not competedirectly with semiskilled and skilled laborers.Because of this, it is useful to think of labor as beinggrouped into noncompeting labor grades, broadcategories of labor that do not directly competewith one another because of experience, training,education, and other human capital investments.

This does not mean that some people in one cat-egory can never make it to a higher category—work-ers often do when they acquire additional skills andtraining. Others, however, often find it difficult tomake the transition for reasons of cost, opportu-nity, and initiative.

Cost is one of the more difficult barriers toadvancement. Some individuals have the ability andinitiative to obtain additional technical skills, butthey may not have the money to pay for the training.Many students have the aptitude to become college

PERCENT OF INCOMESPENT ON FOODHow much does food cost you and your family?Depicted here is the percentage of income thatthe average citizen of the country spends onfood.

1. Making Comparisons How do the expendi-tures in the United States compare withthose in France?

2. Making Generalizations Is the statement“Most nations’ citizens spend about 20 per-cent of their income on food” a valid state-ment? Why or why not?

Critical Thinking

10.911.514.514.615.2

United StatesUnited KingdomSwedenAustraliaFrance

New ZealandItalyGermanyJapanIsrael

15.717.617.717.821.0

SpainSouth AfricaMexico

21.027.033.2

Source: USDA, United Nations System of National Accounts


professors, but they lack the resources needed for upto six years of post-college study.

A lack of opportunity poses another barrier. Somepeople may live in areas where additional trainingand education are not available. Others may have theresources and grades to enter a specialized programsuch as law or medical school, but still may not beable to enter because schools have limited openings.

Although they know that more skills are neededto get a better job, other individuals simply lack theinitiative to get ahead. These people may neveracquire additional training or education becausethey are not willing to put forth the extra effort.

Wage DeterminationMost occupations have a wage rate, a stan-dard amount of pay given for work per-

formed. Wage rates usually differ from oneoccupation to the next, and wages are sometimesdifferent even within the same occupation.

Differences in wage rates can be explained inthree ways. The first relies on the traditional toolsof supply and demand. The second recognizes theinfluence of unions in the bargaining process. Thethird is known as “signaling theory.”

Traditional Theory of WagesSome of the highest paid people are the profes-

sional athletes, performers, and managers withskills so exceptional that they are above andbeyond the norm in their professions. Their paycan be explained by the traditional theory ofwage determination. The theory states that thesupply and demand for a worker’s skills and serv-ices determine the wage or salary.

Note that Panel A in Figure 8.5 shows what hap-pens to wages when a relatively large supply ofditch diggers is coupled with a relatively low levelof demand. Panel B shows what happens when arelatively small supply of professional athletes ispaired with a relatively high level of demand. Theintersection of supply and demand determines theequilibrium wage rate—the wage rate that leavesneither a surplus nor a shortage in the labor market.

In most cases, the higher the level of human cap-ital, the higher the skill of labor required, and the


Using GraphsUsing Graphs The market forces of supply and demand explain the equilibrium wage rate for the traditional theory of wage determination. How does this theory differ from the theory of negotiated wages?

The TraditionalTheory of WageDetermination

$1,000,000

Quantity

Annu

al W

ages

D

DS

S

BB Professional Athletes

High demand,low supply result

in highannual wages.

Annu

al W

ages

$18,000

Quantity

D

DS

S

AA Ditch Diggers

Low demand,high supply result

in lowannual wages.


higher the average wage rate. Semiskilled workersgenerally receive more than unskilled workers, andskilled workers receive more than semiskilled orunskilled workers. Professional workers generallyearn more than any of the other grades. This rela-tionship is evident in Figure 8.6, which ranks occu-pations in descending order according to the levelof skills and training required.

At times, exceptions to the traditional theorymay appear to exist. Some unproductive workersmay receive high wages because of family ties orpolitical influence. Other highly skilled workersmay receive low wages because of discrimination

based on their race or gender. In addition, workersand employers do not always know what the mar-ket wage rate is or should be.

Theory of Negotiated WagesSometimes other theories are useful when explain-

ing wage differentials. The theory of negotiatedwages states that organized labor’s bargainingstrength is a factor that helps determines wages. Astrong union, for example, may have the power toforce higher wages on some firms.

Figure 8.6 helps validate the theory of negotiatedwages. The table shows that when workers are eitherunionized or represented by unions, weekly salariesare significantly higher than for nonunion workers.This situation applies to all occupations except forthe “managerial and professional specialty” cate-gory, whose members are seldom unionized.

A final factor important to unions and collectivebargaining is seniority—the length of time a personhas been on the job. Because of their seniority,some workers receive higher wages than others whoperform similar tasks.

Signaling TheoryThe last explanation is known as signaling theory.

This theory states that employers are willing to paymore for people with certificates, diplomas,degrees, and other indicators or “signals” of supe-rior ability. For example, a sales firm might preferto hire—or be willing to pay more for—a collegegraduate with a major in modern dance and aminor in theatre, than a high school graduate whoexcelled in business courses.

While this may seem odd at first, some firmsview the college degree as a signal that the individ-ual possesses the intelligence, perseverance, andmaturity to succeed in his or her endeavors.

You might hear from friends and acquaintancesthat they did not need their high school or collegedegree to do the job they currently have—as iftheir education was unimportant. What these peo-ple overlook is signaling theory—the theory thathelps explain why they got the job in the firstplace. The theory says nothing about what theyneeded to know to actually perform the job oncethey got it.



Median Weekly Earningsby Occupation andUnion Affiliation

Representedby UnionsOccupation


NonunionWorkers

Managerial and Profes- sional Specialty

Precision Production, Craft and Repair

Government Workers

Operators, Fabricators, and Laborers

Technical, Sales, and Administrative Support

Farming, Forestry, and Fishing

$884

814

767

627

625

524

$884

590

640

445

536

357

Using Tables Using Tables Weekly earnings are significantly higher for highly skilled occupations. Workers represented by unions also make substantially more than their nonunion counterparts. What can you infer about the theory of negotiated wages from Figure 8.6?

208_GLENEPP 10/17/03 10:42 AM Page 208

Regional Wage DifferencesRegardless of how wage rates are determined,they can still be different for the same job

from one part of the country to another. Labormobility, cost of living differences, and attractive-ness of location can all make a difference.

Skilled workers often are scarce in some parts ofthe country and abundant in others, causing differ-ences in wage rates. These differences, however, canbe minimized by labor mobility—the ability andwillingness of workers to relocate in markets wherewages are higher.

Not all workers are equally mobile. Some arereluctant to move away from relatives. Some maywant to move, but find that the cost is too high.Others do not want the inconvenience of buying anew house or renting a new apartment. As a result,the demand for certain skills remains high in someareas and low in others, and so wages tend to vary.

Another factor that affects wages is the cost ofliving. In many southern states, fresh fruits andvegetables are readily available. In addition, littlemoney is spent on heavy clothing or on heating ahome. In Alaska, however, food must be shippedin from thousands of miles away, people must havewarm clothing, and every home must be well

heated. Because the cost of living is higher inAlaska than in southern states, employers tend tooffer higher wages in Alaska.

Finally, location can also make a differencebecause some places are thought to be so attractivethat lower wages can be offered there. A personwho likes to hunt and fish may be willing to workfor less pay in Colorado or Montana than in NewYork City. Others may want to flee the busy—andexpensive—city life for life in the country.


organizer activity on page 205, explain whywage rates differ among regions.

2. Key Terms Define unskilled labor, semiskilledlabor, skilled labor, professional labor, non-competing labor grades, wage rate, traditionaltheory of wage determination, equilibriumwage rate, theory of negotiated wages, sen-iority, signaling theory, labor mobility.

3. List the four categories of labor.

4. Explain the importance of noncompetinglabor grades.

5. Describe three different approaches to wagedetermination.

Applying Economic Concepts6. Signaling Theory Look at some help-wanted

ads in your local paper. What criteria do theyoften specify, and how do these criteria relateto signaling theory?

7. Making Comparisons How does the cate-gory of semiskilled labor differ fromunskilled labor?

8. Making Generalizations If you were a semi-skilled worker, what could you do to moveinto a higher category of noncompetinglabor?


INFOBYTEINFOBYTE

Personal Income Personal income is a measureof income that is published by the Department ofCommerce. It represents the total income thatconsumers receive, including most of the nationalincome earned in the production of gross domes-tic product. It measures wages, salaries and otherincome sources, including rental income, govern-ment subsidy payments, interest income, and divi-dend income.


The passage of the Americans withDisabilities Act in 1990 was the first nationalcivil rights bill for people with disabilities.The law requires all public places to beaccessible. It also prohibits job discrimi-nation against persons with physical ormental disabilities. Disputes over themeaning of the act’s language have led to challenges in court.

The Disabled and theMarketplace

[I]n recent years, many courts have refused toassist people without serious disabilities. The rea-son is the language of the ADA, which only cov-ers disabilities that “substantially limit”important activities such as work. Often, judgeshave interpreted it to exclude anybody whoseimpairments can be corrected.

That narrow legal reasoning has put many peo-ple with treatable disabilities in a Catch-22. Justbecause someone can lead a relatively normal lifedoesn’t mean they don’t face work-place discrimination as a result oftheir disability.“A person isjudged too dis-abled to qualifyfor work butnot disabledenough to becovered by the

act,” says Catherine A. Hanssens, director of theLambda Legal Defense & Education Fund. Takento its extreme, the employers’ position would havethe law cover only persons with disabilities sosevere they can barely work,thereby rendering the lawalmost meaningless. . . .

By narrowly construingthe ADA, the courts are pre-venting many able-bodiedpeople from pursuing produc-tive careers. Consider the caseof Vaughn Murphy, who suedAtlanta-based United Parcel Service Inc. after thecompany fired him as a truck mechanic in1994. . . . His job included road tests of the truckshe fixed, and UPS said Murphy’s blood pressureexceeded federal standards for driving. Murphycounters that the driving took up only 1% of histime, so it would not have been expensive to hireanother driver.

“Truck work has been my life. When you’vededicated 23 years, it’s hard to up and change youroccupation,” says Murphy. . . . UPS attorneyWilliam Kilberg says that Murphy understates theamount of driving that his old job required andthat if the Supreme Court rules against the com-pany, it “would be a blow to a company’s abilityto set quality standards.”

N e w s c l i p

Examining the Newsclip1. Analyzing Information How has the govern-

ment attempted to reduce the effect of discrim-ination against disabled workers?

2. Drawing Conclusions Have these effortschanged societal values towards the disabled?Why or why not?

—Reprinted from April 26, 1999 issue of Business Week, by special permission, copyright © 1999 by The McGraw-Hill Companies, Inc.

210

210_GLENEPP 10/17/03 10:43 AM 0

Employment Trends and Issues

Main IdeaImportant employment issues include union decline,unequal pay, and the minimum wage.

Reading StrategyGraphic Organizer As you read the section, completea graphic organizer similar to the one below toexplain why comparable worth is difficult to apply.

Key Termsgiveback, two-tier wage system, glass ceiling, compa-rable worth, set-aside contract, part-time worker, min-imum wage, current dollars, real or constant dollars,base year

ObjectivesAfter studying this section, you will be able to:1. Explain why union membership has declined.2. Describe reasons for the discrepancy in pay

between men and women.

Applying Economic ConceptsMinimum Wage Have you ever worked at a job andearned exactly $5.15 an hour? Read to find out moreabout the minimum wage.

Comparable worth

Reaso

n

Reason

Reaso

n

Reason

Cover Story

A Two-Tier SystemThe plan to reorgan-

ize United Airlines is

beginning to gel, and the

company’s employees

aren’t going to like it.

[T]he Chicago Tribune

reported that the plan

was to spin off regional

feeder routes into a cut-

rate carrier that paid its employees far less than the

industry-leading wages that United pilots and mechan-

ics have been earning.

“The task before us is to transform United into a

successful and aggressive competitor for the long term

for all customers and across all markets,” UAL Corp.

said in a statement that confirmed at least the general

thrust of the plan. . . .

The Air Line Pilots Association . . . responded

with cold fury, . . . “We will oppose [management’s

plan] by every lawful means available to us.”

—The Business Journal of Portland, January 30, 2003

Pilots’ pay may showstriking differences.

Important issues abound in today’s labor market.The two-tier wage structure discussed in thecover story, along with other issues, have an

enormous impact on morale—and consequently, pro-ductivity—in the economy.

Decline of Union InfluenceA significant trend in today’s economy is thedecline in both union membership and influ-

ence. As Figure 8.7 shows, 35.5 percent of nonagri-cultural workers were members of unions in 1945.This number fell to 21.9 percent by 1980, and thendropped to about 13 percent by 2002.

Reasons for DeclineSeveral reasons account for the decline in

union membership and influence. The first is thatmany employers made a determined effort tokeep unions out of their businesses. Someactivists even hired consultants to map out legalstrategies to fight unions. Other employers madeworkers part of the management team, addingemployees to the board of directors or setting upprofit-sharing plans to reward employees.


211_GLENEPP 10/17/03 11:34 AM Page 211

A second reason for union decline is that newadditions to the labor force—especially womenand teenagers—traditionally had little loyalty toorganized labor. Because many of these workersrepresent second incomes to families, they have atendency to accept lower wages.

The third and perhaps most important reasonfor the decline is that unions are the victims oftheir own success. When unions raise their wagessubstantially above the wages paid to nonunionworkers, some union-made products becomemore expensive and sales are lost to lower-costforeign and nonunion producers. This forcesunionized companies to cut back on production,which causes layoffs and unions to lose some oftheir members.

Renegotiating Union WagesBecause unions have generally kept their wages

above those of their nonunion counterparts, unionwages have been under pressure.

One way employers have been able to reduceunion wages is by asking for givebacks from unionworkers. A giveback is a wage, fringe benefit, or workrule given up when a labor contract is renegotiated.

Some companies have been able to get rid of laborcontracts by claiming bankruptcy. If a company canshow that wages and fringe benefits contributed sig-nificantly to its problems, federal bankruptcy courtsusually allow a company to terminate its union con-tract and establish lower wage scales.

Another way to reduce union salary scales iswith a two-tier wage system—a system that keeps

Using Graphs


Using Graphs Union membership grew rapidly after 1933 and peaked at 35.5 percent in 1945. How would you describe the trend of union membership during the 1980s? During the 1990s?

Union Membership40%

35%

30%

25%

20%

15%

10%

5%

0%

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

Uni

on M

embe

rshi

pas

Per

cent

of

Empl

oym

ent

YearsSource: Bureau of Labor Statistics, 2003

2002


212_GLENEPP 10/17/03 11:34 AM Page 212

high wages for current workers, but has a muchlower wage for newly hired workers. As noted inthe cover story, this practice is becoming wide-spread in industry, and often has union approval.In Ohio, for example, locals of the InternationalUnion of Electronic Workers have multitieredcontracts with General Motors, Ford, andChrysler. One contract even pays starting workers55 percent of standard pay, and requires 17 yearsbefore a worker can reach the top scale.

Lower Pay for WomenOverall, women face a considerable gapbetween their income and the income

received by men. As Figure 8.8 shows, femaleincome has been only a fraction of male incomeover a 40-year period—with a 24-percentage-pointgap for the most recent year.

This gap has been the subject of much study. In1998, the President’s Council of Economic

Advisors released an extensive report calledExplaining Trends in the Gender Wage Gap that shedslight on the situation.

Human Capital DifferencesAccording to the report, about one-third of the

gap was due to differences in the skills and experi-ence that women bring to the labor market. Forexample, women tend to drop out of the laborforce to raise families, whereas men often do not.The report found that working women had lowerlevels of education than their male counterparts. Ifthese two factors—experience and education—werethe same for both men and women, one-third ofthe wage gap would disappear.

Gender and OccupationThe study also concluded that slightly less than

one-third of the wage gap was due to the unevendistribution of men and women among variousoccupations. To illustrate, Figure 8.9 shows that


Using GraphsUsing Graphs Over the years, the income earned by females has been only a fraction of that earned by males. When did median female income first reach 70 percent of male median income?

Median Female Income as a Percentage of Male Income80

70

60

50

40

30

20

10

0

Fem

ale/

Mal

e Ea

rnin

gs R

atio

YearsSource: Bureau of Labor Statistics, 2003

1955

1960

1965

1970

1975

1980

1985

1990

1995

2001


213_GLENEPP 10/17/03 11:34 AM Page 213

more men enter construction and engineeringtrades than do women. Likewise, women enter theprivate household service and office-worker occu-pations in relatively greater numbers than men.

As long as construction and engineering wages arehigher than private household and office workerwages, men, on average, will earn more than women.

DiscriminationThe study also found that more than one-

third—or about 11 percentage points—of the gap

could not be explained. Accordingly, many ana-lysts attribute this to discrimination that womenface in the labor market. In fact, women andminorities often feel that their difficulties in get-ting raises and promotions are like encountering aglass ceiling, an invisible barrier that obstructstheir advancement up the corporate ladder.

Legal RemediesTwo federal laws are designed to fight wage and

salary discrimination. The first is the Equal Pay


Using GraphsUsing Graphs One of the reasons for the pay differential between the sexes is that men and women are not evenly distributed among occupations. If men tend to cluster in higher-paid occupations, and if women tend to cluster in lower-paid occupations, the average pay for men and women will differ. In what occupations do women make up between 60 and 80 percent of the workforce?

Distribution of Male and Female Jobs by Occupation

FemalesSource: Bureau of Labor Statistics, 2003

80% 60%Males

40%100% 40% 20% 0 20% 60% 80% 100%

Teachers, College and University

Sales Supervisors and Proprietors

Machine Operators, Assemblers

Mathematical and Computer Scientists

Motor Vehicle Operators

Construction Laborers

Mechanics and Repairers

Construction Trades and Crafts

Secretaries, Stenographers, and Typists

Private Household Service Workers

Health Service Workers

Teachers, except College and University

Sales, Retail, Personal Services

Computer Operators

Food Service Workers

Lawyers and Judges

Health Diagnosing Occupations

Engineers


214_GLENEPP 10/17/03 11:34 AM Page 214

Act of 1963 which prohibits wage and salary dis-crimination for jobs that require equivalent skillsand responsibilities. This act applies only to menand women who work at the same job in the samebusiness establishment.

The second law is the Civil Rights Act of 1964.Title VII of this act prohibits discrimination in allareas of employment on the basis of gender, race,color, religion, and national origin. The lawapplies to employers with 15 or more workers,although it specifically excludes religious associa-tions and their educational institutions.

The Civil Rights Act of 1964 also set up theEqual Employment Opportunity Commission(EEOC). The EEOC investigates charges of dis-crimination, issues guidelines and regulations, con-ducts hearings, and collects statistics. If a pattern ofdiscrimination is discovered, the government canbring suit against a company.

Comparable WorthOne measure used to close the income gap

between men and women is comparable worth,the principle stating that people should receiveequal pay for work that is different from, but just asdemanding as, other types of work.

In the state of Washington, for example, a fed-eral judge ruled that work performed by socialservice workers—most of whom were female—wasjust as demanding as some traditionally maleoccupations. The judge ordered the state to raisewages and give workers several years’ back pay. InIllinois, job evaluators determined that the workdone by highway workers was roughly equivalentto that done by nurses.

Comparable-worth decisions are not easy to makebecause so many factors, such as occupational haz-ards, educational requirements, and degree of phys-ical difficulty must be taken into consideration.

Some people—including most economists—believethat fair and unbiased comparisons of occupationsare almost impossible to make. This group alsoargues that comparable worth is not needed as longas people are free to obtain training and to enter theprofession of their choice. Others argue that compa-rable worth is necessary to remove gender discrimi-nation in the marketplace.

These issues, along with a lack of federal legisla-tion and the reluctance of the courts to interferewith the market, have limited the popularity of com-parable worth in the United States. Comparableworth is widely used in Europe and Canada, however.

Set-Aside ContractsAnother corrective measure is the government

set-aside contract, a guaranteed contract reservedexclusively for a targeted group. The federal gov-ernment, for example, requires that a certain per-centage of defense contracts be reserved exclusivelyfor minority-owned businesses.

Another example is a 1988 California law requir-ing that 5 percent of the state’s bond contracts beset aside exclusively for women lawyers, bankers,and other females who help place the bonds withinvestors. Such laws ensure that states do not giveall of their business to males in a male-dominatedprofession.

Most set-aside programs are beginning to add“graduation” clauses that “promote” minority-owned businesses out of the program once theyreach a certain size or have received set-aside con-tracts for a certain number of years. After all, theintent of the program is to give these firms a boost,not a permanent subsidy.

The End of Work?Some analysts in the past contended that thecomputer age would result in less work forhumans. What’s happening, however, is thatmore people are working more hours. Theaverage number of hours worked per week hasincreased from 40 hours in 1973 to 50 hourstoday. Why is this happening? One explanationis that computers don’t replace human thoughtand endeavor, they extend it. By allowing peo-ple to communicate easily at any time from anyplace, computers increase the amount of timepeople work.


Part-Time WorkersOne of the more remarkable trends in thelabor market has been the rise in part-time

employment. Part-time workers—or those workerswho regularly work fewer than 35 hours per week—account for one out of five jobs in the U.S. economy.In some states, like North Carolina, part-time laboraccounts for nearly 25 percent of the workforce.

Reasons for GrowthPart of the reason for the part-time job growth is

the evolving nature of the economy. When retailstores stay open for more hours, they often needworkers to fill in at odd times—and the checksreceived by part-time workers are often welcomeadditions to the family income. Also, the odd hoursgive some workers the opportunity to do otherthings, such as take college classes, that would nor-mally interfere with the standard 40-hour workweek.

The use of part-time workers also gives employ-ers more flexibility to schedule workers for peakperiods, such as during lunch or supper at fast-foodrestaurants. Businesses also like the lower cost ofpart-time workers because they receive few of thehealth, retirement, and other benefits received byfull-time workers. When the savings from thesefringe benefits are combined with lower part-timehourly salaries, the sums can be substantial. Today,figures from the Bureau of Labor Statistics showthat part-time employee wages and fringe benefitsaveraged slightly over $10 per hour, as compared tomore than $20 for full-time workers.

Critics of Part-Time EmploymentThe arguments against part-time jobs are that

wages are too low, and the hours too few, for work-ers to earn a decent living. In addition, no benefitsare offered. Some part-time workers feel that they arebeing abused by the system and forced to work atinconvenient times. Others feel that the systemdenies full-time employment to a large number ofcapable workers.

Unions are especially opposed to part-timeworkers. The 1997 strike at United Parcel Service(UPS) was partially over this issue. According tothe union, lower paid, part-time workers were rou-tinely scheduled into four-hour shifts even thoughthey wanted full-time employment.

The Minimum WageThe minimum wage—the lowest wage that canbe paid by law to most workers—was first set in

1939 at $.25 per hour. As Panel A in Figure 8.10shows, the minimum wage increased over time untilit reached $5.15 in 1997.

Debate Over the Minimum WageThe minimum wage has always been controver-

sial. Its original intent was to prevent the outrightexploitation of workers and to provide some degreeof equity and security to those who lacked the skillsneeded to earn a decent income.

Supporters of the minimum wage argue thatthese objectives—equity and security—are consistentwith the economic goals of the United States.Besides, they say, the wage is not very high in thefirst place. Opponents of the minimum wageobject to it on the grounds of economic freedom—also a U.S. economic goal. This group also believesthat the wage discriminates against young peopleand is one of the reasons that many teenagers can-not find jobs.

Some parts of the country have even institutedtheir own equivalent of a minimum wage. The cityof Los Angeles, for example, has a “living wage” thatis substantially higher than the federal minimumwage. Any company doing business with the city isrequired to pay its workers at least that amount.

McDonald’s Top Minorities List In a recent Fortunemagazine report of the 50 top companies for minori-ties, McDonald’s came out on top. According to CNN’scoverage of the event, “Minorities make up morethan half of the work force (52.6%) and 36 percent ofthe managers and other officials at the fast-foodgiant. There are two minorities on the company’s 16-member board, and 10 of the 50 highest-paid work-ers are minorities. The company had the highest per-centage of minority-owned franchises in the quickservice food industry, and 35 percent of its purchaseswere from minority-owned firms.”


216_GLENEPP 10/17/03 11:35 AM Page 216


Using Graphs Using Graphs The minimum wage is expressed in current dollars in Panel A, adjusted for inflation in Panel B, and as a percent of the average wage for workers in manufacturing in Panel C. Even though the minimum wage was $5.15 an hour in the last five years, the minimum wage adjusted for inflation decreased. Explain why this occurred.

Sources: Statistical Abstract of the United States, Economic Report of the President, various issues

The Minimum Wage

$7.006.005.004.003.002.001.00

0Curr

ent

Dolla

rs p

er H

our

AA The Minimum Wage in Current Dollars

BB The Minimum Wage Adjusted for Inflation

CC The Minimum Wage as a Percent of the Average Manufacturing Wage

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Measured in Current DollarsPanel A in Figure 8.10 shows the minimum wage

in current dollars, or in dollars that are notadjusted for inflation. The minimum wage isrecorded exactly as it was from 1939 to 2003.

When viewed in this manner, it seems as if theminimum wage increased dramatically over time.The figure, however, does not take into accountinflation, which erodes the purchasing power of theminimum wage.

Adjusted for InflationTo compensate for inflation, economists like to

use real or constant dollars—dollars that areadjusted in a way that removes the distortion ofinflation. This involves the use of a base year—ayear that serves as a comparison for all other years.

Although the computations are complex, theresults are not. Panel B, using constant base-yearprices, shows that the minimum wage had relativelymore purchasing power in 1968 than in any otheryear. As long as the base year serves as a commondenominator for comparison purposes, the resultswould be the same regardless of the base year used.

Panel B also shows that the purchasing power ofthe minimum wage goes up whenever it increasesfaster than inflation, as it did in 1997 when the wage

went to $5.15. However, the minimum wageremained the same through 2003 while prices wentup, so the wage actually purchased a little less astime went by. As long as the minimum wageremains unchanged, and as long as inflation contin-ues, its purchasing power will continue to decline.

Compared to Manufacturing WagesIn Panel C, the minimum wage is shown as a per-

cent of the average manufacturing wage. In 1968,for example, the minimum wage was $1.60 and theaverage manufacturing wage was $3.01. If we dividethe two, the minimum wage works out to be 53.2percent of the manufacturing wage for that year.

When measured in this manner, 1968 was thepeak year. After 1968, the ratio slowly declined toless than 33 percent by 2003. As long as the mini-mum wage stays fixed, and as long as manufactur-ing wages continue to go up, this ratio willcontinue to decline.

The minimum wage will certainly be raisedagain. What is not certain is when this will happen.When the minimum wage becomes unacceptablylow to voters and their elected officials, Congresswill increase it. Some people even want to link theminimum wage to inflation, so that the wage willautomatically rise when prices rise.


organizer activity on page 211, write a defini-tion of comparable worth in your own words.

2. Key Terms Define giveback, two-tier wagesystem, glass ceiling, comparable worth, set-aside contract, part-time worker, minimumwage, current dollars, real or constant dollars,base year.

3. List three reasons for the decline of unions.

4. Describe three reasons for the income gapbetween men and women.

5. Describe the current trends in part-timeemployment.

6. Explain why it is necessary to consider infla-tion when examining the minimum wage.

Applying Economic Concepts7. Minimum Wage A number of arguments exist

both in favor of and against having a mini-mum wage. With which side do you agree?Why?

8. Drawing Conclusions In your opinion, docultural stereotypes influence the incomegap between men and women?



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S e c t i o n 1

The Labor Movement (pages 193–198)

• Craft or trade unions, and industrial unions wereestablished by the end of the Civil War.

• Unfavorable public attitudes existed toward labor:The Sherman Antitrust Act was used against laborand even the Clayton Act was ignored by thecourts.

• Attitudes shifted in favor of labor during the Great Depression with the passage of the Norris-LaGuardia Act, the Wagner Act, and the Fair LaborStandards Act.

• Public opinion shifted against labor again after World War II. The Taft-Hartley Act in 1947limited union activity and allowed states to passright-to-work laws.

• The union movement was dominated by the AFLand the CIO, which merged in 1955 to form theAFL-CIO.

S e c t i o n 2

Resolving Union and ManagementDifferences (pages 200–203)

• The closed shop (now illegal), requires that employ-ers hire only union members selected by the union.The union shop requires that an employee join theunion shortly after being hired. The modified unionshop gives the employee the option to join theunion after being hired. The agency shop requiresthat workers pay dues to the union, but does notrequire the workers to join, even though the unionrepresents all workers.

• When collective bargaining fails, several othermethods are available to settle labor disputes,including mediation, arbitration, fact-finding, theuse of injunctions, and seizure.

S e c t i o n 3

Labor and Wages (pages 205–209)

• Four noncompeting labor grades are unskilled labor,semiskilled labor, skilled labor, and professionallabor.

• Workers usually find it diffi-cult to move to a higherincome group because of thecost of education and training,the lack of opportunities foreducation and training, andlack of individual initiative.

• The traditional theory of wagedetermination uses the marketforces of supply and demand to explain wage rates;the theory of negotiated wages argues that the relativestrength of a union is a factor; signaling theory arguesthat certificates and diplomas are signals of ability.

• Wages also differ because of labor mobility, the costof living, and attractiveness of work locations.

S e c t i o n 4

Employment Trends and Issues(pages 211–218)

• Union membership is declining because of anti-union activities by firms, labor force additions thathave little loyalty to labor, and unions that havepriced themselves out of some markets.

• Corrective measures include anti-discrimination laws,the principle of comparable worth, and set-asidecontracts.

• Part-time jobs are increasing, providing flexible, lowcost options to employers.

• The minimum wage has lost much of its purchasingpower because of inflation. It is also falling behindwhen measured as a percent of the average manufac-turing wage.


Reviewing Key TermsClassify each of the terms below as pro-union, antiunion, orneither.

1. boycott2. closed shop3. company union4. labor mobility5. fact-finding6. giveback7. grievance procedure8. lockout9. modified union shop

10. seizure11. injunction12. picket13. right-to-work law14. agency shop15. strike16. two-tier wage system17. arbitration18. mediation

Reviewing the FactsSection 1 (pages 193–198)

1. Describe current union influence in terms ofmembership and workers represented by unions.

2. Compare the two types of unions in the post-Civil War period.

3. Describe the advances made by unions during theGreat Depression.

4. Outline the progress of unions since the end ofWorld War II.

Section 2 (pages 200–203)

5. Describe the four types of union arrangements.

6. Explain five approaches to resolving a deadlockthat may occur between a union and a company’smanagement.


7. Explain the differences between the four major categories of noncompeting labor.

8. Explain why it is so difficult for workers to move from one category of labor to another.

9. Compare the three theories of wage determination.

10. Discuss the reasons for regional wage differences.


11. Explain why unions have lost members, as well asinfluence, in recent years.

12. Describe two corrective measures being taken toclose the income gap between men and womenworkers.

13. Explain the popularity of part-time employment.

14. Identify three ways to evaluate the minimumwage.

Thinking Critically1. Making Generalizations Unions generally argue

that the best interests of workers can be served whenemployees are members of a union. Do you agree ordisagree with this statement? Defend your answer.

2. Analyzing Information Some people believe thatin today’s economy, the theory of negotiated wagesis more useful than the traditional theory of wagedetermination. Explain why you agree or disagree.

Self-Check Quiz Visit the Economics: Principlesand Practices Web site at epp.glencoe.com andclick on Chapter 8—Self-Check Quizzes to preparefor the chapter test.



Create webs like the ones below to help youorganize your answer.

Applying Economic Concepts1. Civilian Labor Force As you go to and from

school, take note of the various occupations aroundyou. List at least 10 occupations, then classify themaccording to the four major categories of labor.

2. Minimum Wage Poll at least 10 people of variousages, asking for their opinions on the following state-ment: There should be no minimum wage. Compilethe responses and present your findings to the class.

Math PracticeThe Bureau of Labor Statistics issued these statistics on workers between the ages of 16 and 24, who wereemployed in July 1998: “About 7 in 8 employed youthwere wage and salary workers in the private sector thissummer, with retail trade (7.4 million) and services (5.8 million) the largest employers. There also were sizable numbers of youth employed in manufacturing(2.2 million) and construction (1.2 million). Govern-ment employed a total of 1.5 million young people inJuly. Nearly 3 in 5 of the young people with govern-ment jobs were employed in local governments.”

1. Total the number of individuals employed inretail, services, manufacturing, construction, andgovernment.

2. Use the data to create a circle graph that illustratesthe percentages of individuals ages 16–24 in thedifferent economic sectors.

Thinking Like an EconomistEconomists think of transactions in a market econ-omy as being voluntary, with participants evaluatingtheir decisions incrementally, meaning that they evalu-ate the costs and benefits of every action as they goalong. Use this way of thinking to explain the rise ofpart-time employment.

Technology SkillUsing the Internet Visit the Bureau of LaborStatistics Web site. Search and find the summary ofcurrent employment. Then rewrite the paragraph thatfollows. Employment (rose/fell/remained unchanged).The unemployment rate stands at (?) percent in thelatest month. Average weekly hours (declined/increased/remained unchanged), and average hourlyearnings (fell/rose/were unchanged) at the end of themonth.

Advantages

Disadvantages

Advantages

Disadvantages

Traditional wages

Advantages

DisadvantagesNegotiated wages


Evaluating Primary and Secondary SourcesEconomists define wages and wage rates asthe price paid for labor. Variations in wagesare influenced by differences in workers’skills and nonmonetary differences in jobs.Examine the cartoon below. Explain whateconomists mean by a “competitive” salary.


Chap08 fundamental economic concepts

Education

Transcript of Chap08 fundamental economic concepts