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Why Are the Chicago Cubs Paying Alfonso Soriano $18 Million per Year?

Why Are the Chicago Cubs Paying Alfonso Soriano $18 Million per Year?. Learning Objectives. …wages are determined in the labor market by the demand and supply of labor…. The Markets for Labor and Other Factors of Production.

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Why Are the Chicago Cubs Paying Alfonso Soriano $18 Million per Year?

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  1. Why Are the Chicago Cubs Paying Alfonso Soriano $18 Million per Year? Learning Objectives …wages are determined in the labor market by the demand and supply of labor…

  2. The Markets for Labor and Other Factors of Production Factors of production Labor, capital, natural resources, and other inputs used to produce goods and services.

  3. Learning Objective 16.1 The Demand for Labor Derived demand The demand for a factor of production that is derived from the demand for the good the factor produces. The Marginal Revenue Product of Labor Marginal product of labor The additional output a firm produces as a result of hiring one more worker. Marginal revenue product of labor (MRP) The change in a firm’s revenue as a result of hiring one more worker.

  4. Learning Objective 16.1 The Demand for Labor The Marginal Revenue Product of Labor FIGURE 16-1 The Marginal Revenue Product of Labor and the Demand for Labor

  5. Learning Objective 16.1 The Demand for Labor The Marginal Revenue Product of Labor Table 16-1 The Relationship between the Marginal Revenue Product of Labor and the Wage

  6. Learning Objective 16.1 16-1 Solved Problem Hiring Decisions by a Firm That Is a Price Maker

  7. Learning Objective 16.1 The Demand for Labor The Market Demand Curve for Labor The market demand curve for labor is determined by adding up the quantity of labor demanded by each firm at each wage, holding constant all other variables that might affect the willingness of firms to hire workers.

  8. Learning Objective 16.1 The Demand for Labor Factors That Shift the Market Demand Curve for Labor The five most important variables that cause the labor demand curve to shift are the following: • Increases in human capital. Human capital The accumulated training and skills that workers possess. • Changes in technology. • Changes in the price of the product. • Changes in the quantity of other inputs. • Changes in the number of firms in the market.

  9. Learning Objective 16.2 The Supply of Labor FIGURE 16-3 FIGURE 16-2 A Backward-Bending Labor Supply Curve The Labor Supply Curve

  10. Learning Objective 16.2 The Supply of Labor The Market Supply Curve of Labor The market supply curve of labor is determined by adding up the quantity of labor supplied by each worker at each wage, holding constant all other variables that might affect the willingness of workers to supply labor. Factors That Shift the Market Supply Curve of Labor • Increases in population. • Changing demographics. • Changing alternatives.

  11. Learning Objective 16.3 Equilibrium in the Labor Market FIGURE 16-4 Equilibrium in the Labor Market

  12. Learning Objective 16.3 Equilibrium in the Labor Market The Effect on Equilibrium Wages of a Shift in Labor Demand FIGURE 16-5 The Effect of an Increase in Labor Demand

  13. Learning Objective 16.3 MakingtheConnection • Will Your Future Income Depend on Which Courses You Take in College?

  14. Learning Objective 16.3 Equilibrium in the Labor Market The Effect on Equilibrium Wages of a Shift in Labor Supply FIGURE 16-6 The Effect of an Increase in Labor Supply

  15. Learning Objective 16.3 MakingtheConnection • Immigration and Wages, Then and Now The flower industry is one of many industries in the United States that rely on immigrant workers.

  16. Learning Objective 16.4 Explaining Differences in Wages FIGURE 16-7 Baseball Players Are Paid More Than College Professors Don’t Let This Happen to YOU!Remember That Prices and Wages Are Determined at the Margin

  17. Learning Objective 16.4 MakingtheConnection • Technology and the Earnings of “Superstars” Why does Julia Roberts earn more today relative to the typical actor than stars did in the 1940s?

  18. Learning Objective 16.4 Explaining Differences in Wages Compensating Differentials Compensating differentials Higher wages that compensate workers for unpleasant aspects of a job. Discrimination Table 16-2 Why Do White Males Earn More Than Other Groups?

  19. Learning Objective 16.4 Explaining Differences in Wages Discrimination Most economists believe that only a small amount of the gap between the wages of white males and the wages of other groups is due to discrimination. Instead, most of the gap is explained by three main factors: 1 Differences in education 2 Differences in experience 3 Differing preferences for jobs Differences in Education Some of the difference between the incomes of whites and the incomes of blacks can be explained by differences in education.

  20. Learning Objective 16.4 Explaining Differences in Wages Discrimination Differences in Experience Women are much more likely than men to leave their jobs for a period of time after having a child. Differing Preferences for Jobs Significant differences between the types of jobs held by women and men is likely a reflection in job preferences.

  21. Learning Objective 16.4 Explaining Differences in Wages Discrimination Differing Preferences for Jobs “Men’s Jobs” Often Pay More Than “Women’s Jobs” Table 16-2

  22. Learning Objective 16.4 16-4 Solved Problem Is “Comparable Worth” Legislation the Answer toClosing the Gap between Men’s and Women’s Pay?

  23. Learning Objective 16.4 Explaining Differences in Wages Discrimination The Difficulty of Measuring Discrimination When two people are paid different wages, discrimination may be the explanation. But differences in productivity or preferences may also be an explanation.

  24. Learning Objective 16.4 Explaining Differences in Wages Discrimination Does It Pay to Discriminate? FIGURE 16-8 Discrimination and Wages

  25. Learning Objective 16.4 Explaining Differences in Wages Discrimination Does It Pay to Discriminate? Employers who discriminate pay an economic penalty. Yet before the Civil Rights Act of 1964 many firms continued to discriminate. The three important factors that allowed these companies to operate were: 1Worker discrimination. 2Customer discrimination. 3Negative feedback loops.

  26. Learning Objective 16.4 Explaining Differences in Wages Labor Unions Labor union An organization of employees that has the legal right to bargain with employers about wages and working conditions. FIGURE 16-9 The United States Is Less Unionized Than Most Industrial Countries

  27. Learning Objective 16.4 Explaining Differences in Wages Labor Unions Table 16-3 Union Workers Earn More Than Nonunion Workers

  28. Learning Objective 16.5 Personnel Economics Personnel economics The application of economic analysis to human resources issues. Should Workers’ Pay Depend on How Much They Work or on How Much They Produce? FIGURE 16-10 Paying Car Salespeople by Salary or by Commission

  29. Learning Objective 16.5 MakingtheConnection • Raising Pay, Productivity, and Profits at Safelite AutoGlass A piece-rate system at Safelite AutoGlass led to increased worker wages and firm profits.

  30. Learning Objective 16.5 Personnel Economics Other Considerations in Setting Compensation Systems Firms may choose a salary system for several good reasons: • Difficulty in measuring output. • Concerns about quality. • Worker dislike of risk.

  31. Learning Objective 16.6 The Markets for Capital and Natural Resources The Market for Capital FIGURE 16-11 Equilibrium in the Market for Capital

  32. Learning Objective 16.6 The Markets for Capital and Natural Resources The Market for Natural Resources FIGURE 16-12 Equilibrium in the Market for Natural Resources

  33. Learning Objective 16.6 The Markets for Capital and Natural Resources The Market for Natural Resources Economic rent (or pure rent) The price of a factor of production that is in fixed supply.

  34. Learning Objective 16.6 The Markets for Capital and Natural Resources Monopsony Monopsony The sole buyer of a factor of production. With only one lumber mill in town, the wages of these loggers won’t be as high.

  35. Learning Objective 16.6 The Markets for Capital and Natural Resources The Marginal Productivity Theory of Income Distribution Marginal productivity theory of income distribution The theory that the distribution of income is determined by the marginal productivity of the factors of production that individuals own.

  36. Are Race Car Drivers Athletes? We Don’t Know, but the Pit-Crew Members Are LOOK An Inside Racing Teams Recruit Athletes and Train Them Hard; The $60,000 Tire Carrier

  37. K e y T e r m s Compensating differentialsDerived demand Economic discrimination Economic rent (or pure rent) Factors of production Human capital Labor union Marginal product of laborMarginal productivity theory of income distribution Marginal revenue product of labor (MRP) Monopsony Personnel economics

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