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What is fair pay? W = P * MP

What is fair pay? W = P * MP. What is fair pay? W = P * MP. http://money.cnn.com/2005/04/15/pf/college/starting_salaries/. Kevin J. Murphy “Executive Compensation” in O. Ashenfelter and D. Card eds. Handbook of Labor Economics Vol. 3B. 1999. Stock Option. P 1. P 0. T 1. Time.

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What is fair pay? W = P * MP

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  1. What is fair pay?W = P * MP

  2. What is fair pay?W = P * MP http://money.cnn.com/2005/04/15/pf/college/starting_salaries/

  3. Kevin J. Murphy “Executive Compensation” in O. Ashenfelter and D. Card eds. Handbook of Labor Economics Vol. 3B. 1999

  4. Stock Option P1 P0 T1 Time Strike Price

  5. Stock Option Option “in the money” P1 Gain P0 T1 Time

  6. Average CEO Pay, Company with annual revenues of $500 million The Economist January 21, 2006

  7. Kevin J. Murphy “Executive Compensation” in O. Ashenfelter and D. Card eds. Handbook of Labor Economics Vol. 3B. 1999

  8. Why not offer stock options to everyone? THE WALL STREET JOURNAL February 24, 2005;  Page A1 Silicon VolleyAs Tech Matures, Workers File A Spate of Salary Complaints

  9. Limitations on the Market Paradigm What determines wages within firms? Internal Labor Markets—Job allocation and compensation decisions within firms Pay structure set by steps, grades, equal treatment across workers within classifications (clerical, blue collar, professional, …)

  10. Limitations on the Market Paradigm Pay structure may be partially divorced from market forces Example California Merit Pay System Market forces most important at entry level

  11. The Market for Nurses Frequently alleged that nurses are underpaid relative to their fair value

  12. Growth of Usual Weekly Wages for Physicians, Nurses, Manufacturing Workers, and Private Sector Workers, 1980-2002 Occupation198019922006 Physicians 452 1007 1583 Registered Nurses 297 662 1051 Manufacturing 289 470 749 Private Sector 235 364 585 CPI 87 140.3 202.4 Source: U.S. Bureau of Labor Statistics. Employment and Earnings. Various issues. Updated by National Occupational Employment and Wage Estimates

  13. Growth of Usual Weekly Wages for Physicians, Nurses, Manufacturing Workers, and Private Sector Workers, 1980-2006 Percent Growth in Real Wages = 100*{(Wt / Pt ) / (Wt-1/Pt-1)} Occupation1980-19921992-20061980-2002 Physicians 38.2 9.0 50.5 Registered Nurses 38.2 10.0 52.1 Manufacturing 0.8 10.5 11.4 Private Sector -4.0 11.4 7.0 Source: U.S. Bureau of Labor Statistics. Employment and Earnings. Various issues.

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