Wages and Me The factors that determine wages

Wages and Me The factors that determine wages and influence your future wage rate Wages and Me

Factors that influence wage rates • Demand supply forces • Productivity • The relative value others place on the goods and services produced • The labor costs associated with that production • Cost of living and government rules and regulations Wages and Me

Demand supply • Wages are higher for those individuals who supply: • Highly valued goods and services • Rare skill sets, unique talents, and customized work that is in great demand • Wages are determined by the balance of demand supply Wages and Me

Productivity • Highly productive workers command higher wages than their counterparts. • They produce more per hour and make fewer mistakes in each labor hour. Wages and Me

Productivity Influencers • Education • Training • Certification • Experience • Transferability of skill sets Wages and Me

Relative value • Individuals who supply a skill set that is either in short supply or in high demand earn higher wages than their counterparts. • Professional athletes and accomplished musicians or vocalists offer skills in short supply while in high demand. Consider Le. Bron James, Stephen Curry, Taylor Swift, Ariana Grande, and others like them. • Others commanding high wages may provide what is valuable to millions at low cost per unit. Consider Jeff Bezos of Amazon, Peter Thiel of Paypal, Bill Gates of Microsoft, and Elon Musk of Tesla. • Teachers, on the other hand, provide valuable services. However, there is a bountiful supply of them and people are not willing to privately pay high prices per teaching hour, on average. Wages and Me

Labor costs and productivity • Employees prefer high wages while employers prefer low. To balance the wants, needs, and desires of each, the employee and employer negotiate wages, benefits, and employment conditions. • On signing an employment contract, both the employee and employer signal that they have arrived at a mutually beneficial agreement and terms of employment. Otherwise, they would not sign. • As long as the marginal “productivity” of the worker is greater than the wage rate for the employer and the wage rate is higher than whatever the second best wage rate is for the employee, both the employer and employee benefit. Wages and Me

Cost of living, government rules and regulations, and other factors impact wage rates, too. • The cost of living is different in different cities, states, and countries. • In occupations requiring a lot of education or training or are highly regulated, wages are usually higher. • For example, the cost of living in California is higher than the cost of living in Indiana. California also has more government rules and regulations than Indiana, which raise the cost of doing business, working, and living in California. Therefore, when factoring in the higher cost of living and regulation, wages are generally higher in California than in Indiana. Wages and Me

Conclusion • The forces of supply and demand are key to determining wage rates in our society. • By learning how these and other factors affect the wages in your future career, you can make strategic choices regarding your which occupation to choose based on overall market conditions, education, skill development, and location, to maximize your potential income. Wages and Me