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ECON 104

ECON 104. Week 9. Plan for Week 9. This presentation will provide a few insights on Chapters 11 and 12 of the Miller textbook. “Miller Textbook” Chapter 11. (Why) Are Women Paid Less?. Economy-wide Studies.

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ECON 104

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  1. ECON 104 Week 9

  2. Plan for Week 9 • This presentation will provide a few insights on Chapters 11 and 12 of the Miller textbook.

  3. “Miller Textbook”Chapter 11 (Why) Are Women Paid Less?

  4. Economy-wide Studies • Controlling for several individual characteristics, women’s wages are 10-20% less than men’s wages. • Does this mean women are “discriminated against” in some unfair way?

  5. Firm-level Studies • Using much more detailed criteria, women’s wages are 0-5% less than men’s wages. • Does this mean women are not “discriminated against” in any unfair way?

  6. How are Wages Set? • Wages are two-way agreements between buyers and sellers of labor services. • If either party disagrees, then the trade does not take place. • For both parties to benefit, the wage must be within a range that could be narrow or wide, as noted on the next slide.

  7. Minimum & Maximum Wage • Maximum: The marginal revenue of the marginal product. • The “productivity” of the worker in the eyes of the employer. -------------------------------- • Minimum: The wage that could be obtained in alternative employments. • The “productivity” of the worker in the eyes of the worker.

  8. Why are Women Paid Less? • If women are paid less than men, then there could be two reasons: • Unfair discrimination on the part of employers. • Choices made by women. • Which of the above is the best explanation?

  9. Three Reasons for Lower Pay • Women’s pay is very sensitive to whether or not they have children. • Does this suggest discrimination or choice? • Compensating Differentials of dangerous and unpleasant jobs. • Does this suggest discrimination or choice? • Commitment to Longer Hours • Does this suggest discrimination, or choice?

  10. In Non-Technical Terms. . . • The 0-5% difference between the wages of men and women seems to be the result of women desiring: • To have kids. • To work at safer and more pleasant jobs. • To work at jobs with more flexibility & shorter hours.

  11. Down to Basics • When we see a person bargain for a pay rate of $20 per hour and then see him or her settle for $16 per hour, is there any way to know whether he or she is being “discriminated against” or whether he or she is simply making a constrained choice? • Because costs and benefits are ultimately subjective, there is no scientific way to make this determination.

  12. Extra Reading: • For a nice short article where Thomas Woods explains some of these things in a slightly different way, please click on the link below. http://mises.org/freemarket_detail.aspx?control=380

  13. “Miller Textbook”Chapter 12 The Effects of the Minimum Wage

  14. The Tradeoff Between Wage Rates and Jobs • Demand for labor is downward sloping. • How many workers of each quality will a firm wish to hire? • Firms will hire up to the point where the marginal productivity becomes greater than the cost (wage). • If the wage is higher than the productivity, then they will not hire—or they will hire and then make up the difference in other ways. will fire workers.

  15. Two Ways of Thinking • 1. The Lifter Model • The idea that the minimum wage law will give low-skilled workers a raise in pay by lifting them up to the minimum level. • 2. The Hurdle Model • The idea that the minimum wage law simply makes it illegal to hire those with a productivity less than the minimum.

  16. Consequences of the Minimum Wage Law • A surplus of labor (unemployment). • An increase in non-price discrimination. • A decrease in fringe benefits. • A decrease in on-the-job training. • An increase in crime. • (As people are put out of work)

  17. Unfair Exploitation? • Does the minimum wage law prevent unfair exploitation? • Does the minimum wage law cause unfair exploitation?

  18. What Groups Primarily Bear the Burden of the minimum Wage Law? • Teenagers • Low skilled, low productivity. • They don’t vote. • They don’t understand the consequences. • Very Low-Skilled Workers • Those at the very bottom of the skill levels will be the ones that are not allowed to work.

  19. What is the Real Tradeoff? More jobs, less discrimination, more training, more fringe benefits, more job safety. . . Vs. Higher Wages

  20. Which of the two scenarios on the previous slide do you think low-skilled workers want? • Perhaps more importantly, who should have the right to choose between the two tradeoffs? • Elected officials? • Voters? • Low-skilled workers and employers?

  21. Extra Reading: • There are numerous articles in the economic literature having to do with the minimum wage. Listed below is one short one that does a fine job of pointing out the main ideas in a reasonable way: • Tom Lehman, “The Wages of Sinful Economic Arguments” http://mises.org/freemarket_detail.aspx?control=505

  22. Thank you for viewing. • Dr. Glen Tenney • gten@gwmail.gbcnv.edu • 775-727-2009

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