Chapter 26 Presentations 2 Minimum Wage Wage Floor

Chapter 26 Presentations 2

Minimum Wage • “Wage Floor” set to help less skilled workers earn enough money to escape poverty

2012 Ohio Minimum Wage • $7. 70 per hour for non-tipped employees • $3. 85 per hour for tipped employees (plus tips) • The Federal Wage is $7. 25 per hour

Criticism of Minimum Wage • Higher wages often force employers to cut back and the low wage workers that the minimum wage was designed to help find themselves out of work • Poorly targeted- many of the jobs go to teenagers instead of individuals in poverty

Pro Minimum Wage • Paying higher wages would increase productivity and thus justify the increase in pay • Higher pay would also keep turnover rates down in unskilled positions

Minimum Wage Graph

Poverty Levels • Persons in family/household • • 1 2 3 4 5 6 7 8 Income Level $11, 170 15, 130 19, 090 23, 050 27, 010 30, 970 34, 930 38, 890

Wage Differentials • The difference between the wage received by one worker or group of workers and that received by another worker or group of workers • Ex- 1 st year news anchor v. experienced anchor

Compensating Differences • Differences in the wages received by workers in different jobs to compensate for nonmonetary differences in jobs • Ex- construction workers often make more than sales clerks due to the physical rigors and seasonal employment of construction

Human Capital • Personal stock of knowledge and skills that enables a person to be productive and thus to earn income

Barriers to Higher Wages • • 1. lack of job information 2. geographic immobility 3. union and government restrictions 4. Discrimination

Incentive Pay Plans • Ties worker compensation directly to performance

Ways to fight Ineffective Workers. Incentive Pay • 1. Piece Rates- pay per # output • 2. Commission or Royalties- based on value of sales • 3. Bonuses, Stock Options and Profit Sharing • 4. Efficiency Wages- pay above equilibrium wages

Are You Kidding Me? • • • 5 Highest Paid CEOs, 2011 (in millions) 1. Lawrence Ellison, Oracle ($56. 8) 2. Carol Bartz, Yahoo ($47. 2) 3. Leslie Moonves, CBS Corp ($43. 2) 4. Marc Casper, Thermo Fisher ($34. 3) 5. John Hammergren, Mc. Kesson ($34. 2)

Labor Unions • These organizations have many goals including improved working conditions, hours, etc • ***Main objective is to increase wages*** • There are 3 union models in which they attempt to obtain better wages

1. Demand Enhancement Model • From a union viewpoint, the best way to raise wages is to increase the demand for labor • This increase in labor demand will create higher wages and more jobs • 3 ways this can occur: – A. Increase Product Demand (advertising) – B. Increase Productivity ( – C. Alter the Price of Other Inputs (reduce tariffs on complementary goods or increase on substitutes)

• Demand Enhancement Model Wage Rate (Dollars) – Increase Product Demand – Increase Productivity – Alter the Price of Other Inputs S Increase In Demand Wu Wc D 2 D 1 Qc Qu Quantity of Labor

2. Exclusive Union (Craft Union) • Reduce the supply of labor to raise wages • Occupational Licensing that requires certain training to be part of the union • Ex- American Medical Association, American Bar Association

3. Inclusive Union (Industrial Union) • Try to make all available labor in an industry part of a union- skilled and unskilled workers • Strengthens the threat of a strike so companies are much more likely to give higher wages

Bilateral Monopoly • A monopoly v. a Monopsony • 1 supplier of labor (union) and 1 company hiring (monopoly)