WAGE DETERMINATION Pertemuan 21 Matakuliah: J0114-Teori Ekonomi Tahun: 2009.
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Transcript of WAGE DETERMINATION Pertemuan 21 Matakuliah: J0114-Teori Ekonomi Tahun: 2009.
WAGE DETERMINATIONPertemuan 21
Matakuliah : J0114-Teori EkonomiTahun : 2009
Bina Nusantara University 3
Labor Wages and Earnings
• Wage Rate• Nominal Wage• Real Wage• General Level of Wages• Role of Productivity
– Plentiful Capital– Access to Abundant Natural
Resources– Advanced Technology– Labor Quality– Other Factors
Bina Nusantara University 4
Purely Competitive Labor Market
• Market Demand for Labor• Market Supply for Labor• Labor Market Equilibrium• MRP = MRC Rule
Graphically…
Bina Nusantara University 5
Purely Competitive Labor Market
Wag
e R
ate
(Do
llar
s)
Wag
e R
ate
(Do
llar
s)
($10)WC
($10)WC
Labor Market Individual Firm
Quantity of Labor Quantity of Labor
QC
(1000)
0 0
D=MRP(∑ mrps) d=mrp
qC
(5)
s=MRC
S
e
c
b
a
Bina Nusantara University 6
Monopsony Model
• Monopsony• Upward-Sloping Labor Supply to Firm• MRC Higher Than the Wage Rate• Equilibrium Wage and Employment
Graphically…
O 26.1
G 26.2
Bina Nusantara University 7
Monopsony ModelW
age
Rat
e (D
olla
rs)
Quantity of Labor
0
S
MRP
MRC
c
b
aWc
Wm
Qm Qc
Examples of Monopsony Power
Monopsonistic Labor Market
Bina Nusantara University 8
Three Union Models
• Demand Enhancement Model– Increase Product Demand– Increase Productivity– Alter the Price of Other Inputs
Wag
e R
ate
(Do
llar
s)
Quantity of Labor
Wu
Qc Qu
Wc
D1
D2
S
IncreaseIn Demand
Bina Nusantara University 9
Three Union Models
• Exclusive or Craft Union Model– Restricted Immigration– Reduced Child Labor– Encouraged Compulsory Retirement– Shorter Hour Workweek– Exclusive Unionism– Occupational Licensing
Graphically…
Bina Nusantara University 10
Three Union Models• Exclusive or Craft Union ModelW
age
Rat
e (D
olla
rs)
Quantity of Labor
D
S1
Qc
Wc
S2
Wu
Qu
DecreaseIn Supply
Bina Nusantara University 11
Three Union Models• Inclusive or Industrial Union
Model– Inclusive Unionism
Wag
e R
ate
(Do
llars
)
Quantity of Labor
D
S
Qc
Wc
Wu
Qu Qe
a be
Bina Nusantara University 12
Three Union Models
• Wage Increases and Unemployment• Average 15% Higher Wages• Reduced Employment Levels
Corrected by:– Growth– Elasticity
Bina Nusantara University 13
Bilateral Monopoly• Indeterminate Outcome• Desirability of Bilateral Monopoly
Wag
e R
ate
(Do
llars
)
Quantity of Labor
D=MRP
S
Qc
Wc
Wu
Qu=Qm
MRC
Wm
a
Bina Nusantara University 14
Minimum Wage
• Case Against the Minimum Wage• Case For the Minimum Wage• State and Locally Set Rates• Evidence and Conclusions
Bina Nusantara University 15
Wage DifferentialsAverage Annual Wages in Selected Occupations, 2005
SurgeonsAircraft PilotsPetroleum EngineersFinancial ManagersLaw ProfessorsChemical EngineersDental HygienistsRegistered NursesPolice OfficersElectriciansTravel AgentsBarbersRetail SalespersonsRecreation WorkersTeacher AidesFast Food Cooks
$177,690135,040
97,35096,62095,57079,23060,62056,88047,27045,63037,75024,70023,17022,42021,10015,500
Occupation Annual Average Wages
Bina Nusantara University 16
Wage Differentials
• Marginal Revenue Productivity• Noncompeting Groups
– Ability– Education and Training
•Human Capital
• Compensating DifferencesO 26.2
Bina Nusantara University 170
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
18-24 25-34 35-44 45-54 55-64 65+
Wage DifferentialsEducation Levels and Individual Annual Earnings
EducationalAttainment
An
nu
al E
arn
ing
s (
Th
ou
san
ds
of
Do
llar
s)
Age
Professional Degree
Bachelor’s Degree
Associate’s Degree
High School Diploma
Bina Nusantara University 18
Wage Differentials
• Marginal Revenue• Market Imperfections
– Lack of Job Information– Geographic Immobility– Unions and Government Restraints– Discrimination