THE LABOR MARKET

1. THE LABOR MARKET Principle #7: People’s skills influence their income.

2. Relative income: why? $5 million $30,000

3. What determines a person’s income? SUPPLY of and DEMAND for their HUMAN CAPITAL

4. High or Low Incomes • High demand, low supply, high income • Low demand, high supply, low income • Wage is the measurement of relative scarcity of particular types of workers. • If you want a high income, develop skills and knowledge in high demand with low supply. Make yourself stand out in the crowd.

5. MAKE YOURSELF SCARCE!!!!

6. THE NEW LABOR MARKETThat was then, this is now NOW THEN BASIC SKILLS REQUIRED: ASSEMBLY LINE GLOBAL COMPETITON, RAPIDLY CHANGING TECHNOLOGY

7. Agricultural Information Knowledge Manufacturing Service Imagination The U.S. Economy

8. The Demand for Labor is a Derived Demand • Business managers hire workers to produce a good or service that can be sold for a profit. • Product demand changes so particular jobs change. • Transferable skills are useful. • Education and training are ongoing.

9. Took years to accomplish Local, state, national Manufacturing Manual Laborer Strength, dexterity, stamina Lifetime with one employer Kindergarten-12th grade Table I: Then and now The Information/ Knowledge Age The Industrial Age Technology change Months, weeks to accomplish Competition Global Type of production Service, info, knowledge Role of workers Designer, engineer, manager Skill requirements Scans (see Table II) Change jobs at least six times, careers three times Employment Learning span Lifetime

10. The Demand for Labor is a Derived Demand • Employers hire workers to help them produce goods and services. • If the value of what they produce is greater than the wage they are being paid, employers will keep them. If not, they won’t.

11. The Principle of Exchange Employers will hire workers if they gain more from hiring them than they give up.

14. All other things being equal higher education leads to higher income

15. Dreams Deferred: Average Earnings and Education for Adults, 2002 Source: U.S. Census Bureau, Statistical Abstract of the United States: 2004 - 2005

16. If you want a good income, make yourself scarce. • Develop marketable skills through: • more education • more training • What skills are likely to be marketable?

17. Interpersonal Systems Information Technology Table II: SCANS 2000 Skills Descriptions Basics Reading, writing, mathematics, listening, speaking Thinking Creative thinking, decision making, problem solving, knowing how to learn, reasoning Personal Responsibility, self-esteem, sociability, self management, integrity Resources Planning, organizing, monitoring, assessing, evaluating, adjusting Teamwork, teaching, serving clients/customers, leadership, negotiating, working with people of diverse cultural backgrounds Understand social, organizational and technological systems; monitor and correct systems Acquiring and evaluating, organizing and maintaining, interpreting and communicating, using computers to process information Selecting equipment and tools, applying technology to specific tasks, maintaining and troubleshooting technologies, learning new technologies

18. Basic Skills • reading • writing • mathematics • listening • speaking

19. Thinking Skills • creative thinking • decision-making • problem solving • visualizing • knowing how to learn • reasoning

20. Personal Qualities • responsibility • self--esteem • sociability • self-management • integrity

21. Resource Allocation • planning • organizing • monitoring • assessing • evaluating • adjusting

22. Interpersonal Skills • team skills • teaching • serving clients/customers • leadership • negotiating • working with people of diverse cultural backgrounds

23. Systems - Social, organizational, and technological • understanding • monitoring • correcting

24. Information • acquiring and evaluating • organizing and maintaining • interpreting and communicating • using computers to process

25. Technology • selecting • applying to specific tasks • maintaining and troubleshooting • keeping up to date • learning

26. To compete in a global economy, you will need these skills

27. The Mirror: An Incredibly Powerful Package of Human Capital!

28. You are the only one who can develop your human capital….. not your teachers, not your parents, YOU

29. The Labor Market(Assume a wage of $100 per day) Marginal Revenue Product Marginal Product Product Price Workers Total Product 3 18 $15 4 30 12 $15 $180 5 40 $15 6 48 $15 7 54 $15 8 58 $15

30. The Labor Market(Assume a wage of $100 per day) Marginal Revenue Product Marginal Product Product Price Workers Total Product 3 18 $15 4 30 12 $15 $180 5 40 10 $15 $150 6 48 8 $15 $120 7 54 6 $15 $90 8 58 4 $15 $60

31. The Marginal Principlein the Labor Market • A firm will hire workers up to the point where their wage is equal to their marginal revenue product W = MRP • If they gain more than they give up, employers will hire workers.

32. The hiring decision and the constant search for substitutes • Hire you? • Hire a different worker? • Hire a machine?

33. Main Points • Relative wage is the measure of the relative scarcity of particular workers. • Relative wages are not a matter of fair or moral value. • The labor market of the 21st century is characterized by rapid technological change, global competition, demand for highly skilled workers, numerous job and career changes, and constant upgrades of skills and knowledge. • The demand for labor is a derived demand.

34. Main Points • Education and training improve human capital and increase peoples’ expected income. • Relative wages are determined by supply and demand. • High wages are earned by workers with very scarce human capital --- high demand and low supply. • Low wages are earned by workers whose human capital is not so scarce --- high supply of workers with similar human capital. • Employers hire workers as long as they expect to gain more than they give --- as long as the expected marginal revenue product of the worker is greater than the wage.

35. MAKE YOURSELF SCARCE!!!!