Examples of wage in the following topics:
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- Efficiency wage theory is the idea that firms may permanently hold to a real wage greater than the equilibrium wage.
- The market-clearing wage is the wage at which supply equals demand; there is no excess supply of labor (unemployment) and no excess demand for labor (labor shortage).
- This is called efficiency-wage theory.
- There are several theories of why managers might pay efficiency wages:
- Instead of market forces causing the wage rate to adjust to the point at which supply equals demand, the wage rate will be higher and supply will exceed demand.
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- One common source of differences in wage rates is human capital.
- If the attractiveness of that area compared to other areas does not change, the wage rate will be set at such a rate that workers will be indifferent between living in areas that are more attractive but with a lower wage and living in areas which are more attractive with a higher wage.
- In this way, a sustained equilibrium with different wage rates across different areas can occur.
- In the United States, minorities and women make lower wages on average than Caucasian men.
- Another source of differing wage rates, however, is discrimination.
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- A worker must decide how many units of labour (hours, days, weeks, years, etc) they will offer for sale at each possible wage rate.
- The supply of labour is a function of the wage rate, the value of leisure, alternatives available, taxes and other circumstances.
- Generally it is believed that more labour will be offered for sale at higher wage rates, up to a point.
- At a wage rates higher than WH, the supplier substitutes leisure for income and offers less labour for sale as the wage increases.
- A horizontal segment at the prevailing wage rate is caused by a worker or workers who refuse to work at any wage that is less than the prevailing wage, WR.
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- The wage rate is determined by the intersection of supply of and demand for labor.
- Firms are demand labor and workers provide it at a price called the wage rate.
- Colloquially, "wages" refer to just the dollar amount paid to a worker, but in economics, it refers to total compensation (i.e. it includes benefits).
- A decrease in the supply of labor will typically cause an increase in the wage rate.
- The wage rate is determined by their intersection.
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- In a perfectly competitive market, the wage rate is equal to the marginal revenue product of labor.
- Just as in any market, the price of labor, the wage rate, is determined by the intersection of supply and demand.
- Therefore, firms will continue to add labor (hire workers) until the MRPL equals the wage rate.
- Thus, workers earn a wage equal to the marginal revenue product of their labor.
- The intersection of vertical supply and the downward sloping demand gives the wage rate.
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- If the labor market is competitive, unions will typically raise wages but increase unemployment.
- This is illustrated in the graphic, in which a union successfully raises the wage rate above the equilibrium wage.
- If we assume that the labor market is imperfect and that wages are naturally lower than the marginal revenue product of labor, unions may increase efficiency by raising wage rates closer to the efficient level.
- In this case, wages will rise without a resulting rise in unemployment.
- If a union is able to raise the minimum wage for their members above the equilibrium wage, then wages will be higher but fewer workers will be employed.
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- Unions are organizations of workers that seek to improve working conditions and raise the equilibrium wage rate.
- Fundamentally, unions seek higher wages for its member workers (though, here "wages" encompases all types of compensation, not just cash paid to the workers by the employer).
- If employers (those who demand labor) have an inelastic demand for labor, the increase in wages (the price of labor) will not translate into a drop in employment (quantity of labor supplied).
- If, however, their demand is elastic, employers will simply respond to union demands for higher wages by hiring fewer workers.
- One tool that unions may use to raise wages is to go on strike.
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- Some argue that imports from countries with low wages has put downward pressure on the wages of Americans and therefore we should have trade barriers.
- Many people believe that imports from countries with low wages has put downward pressure on the wages of Americans.
- There is no doubt that international trade can have strong effects, good and bad, on the wages of American workers.
- Yet, concurrent with the large expansion of trade over the past 25 years, real wages (i.e., inflation adjusted wages) of American workers grew more slowly than in the earlier post-war period, and the inequality of wages between the skilled and less skilled worker rose sharply.
- Was trade the force behind this deteriorating wage performance?
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- According to economic theory, workers' wages are equal to the marginal revenue product of their labor.
- It follows that more productive employees should have higher wages than less productive employees.
- Wages are determined not only by one's productivity, but also by seniority, networking, ambition, and luck.
- Discrimination is sometimes responsible for members of minority racial or gender groups receiving wages that are less than wages for the majority group even when productivity levels are the same.
- If the economic theory were correct in the real world, wages and productivity would increase together.
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- According to market-oriented theories of inequality, the low wage earned by seasonal agricultural laborers will encourage members of the labor pool to acquire other skills, which in term will raise the wage earned by agricultural laborers.
- The model is commonly applied to wages, in the market for labor.
- As populations increase, wages fall for any given unskilled or skilled labor supply.
- Conversely, wages tend to go up with a decrease in population.
- With less supply and stable demand, the wage for agricultural labor will rise to a sustainable level.