ECON LABOR MARKETS

Market Work

Time sold as labor.

Nonmarket work

Time spent getting an education or producing goods and services for personal consumption.

e.g cooking, cleaning, reading

Leisure

Time spent on nonwork activities

(Work and utility: ultility vs. disultitly)

(Utility Maximization: (Opportunity Costs…)

Substitute Effect of a Wage Increase

A higher wage encourages more work because other activities now have a higher opportunity cost

Income Effect of a Wage Increase

A higher wage increases a worker’s income, increasing the demand for all goods, including leisure, so that the quantity of labor supplied to market work decreases.

Backward-Bending Supply Curve of Labor

As the wage rises, the quantity of labor supplied may eventually decline; the income effect of a higher wage increases the demand for leisure, which reduces the quantity of labor supplied enough to more than offset the substitution effect of a higher wage.

The Spice of Life - Case Study (wendys)

Wendy’s commercial (1987), made fun of communism by having a woman wear the same clothes (lack of production differentiation)

Higher Wages, More McRestaurants

Restaurants are monoplositic competitors, each restaurant has high product differentiation through meny itemes, decor or speed of service, digital touch screens, wireless headsets etc (use of capital)

-increase in wage has a small effect on highly capitalized restaurants compared to small ones, causes mom and pop shops to exit industry

Labor Union

A group of workers who organize to improve their terms of employment.

craft union

A union whose members have a particular skill or work at a particular craft, such as plumbers of carpenters. (AFL - American Federatioanal Labor)

Industrial Union

A union of both skilled and unskilled workers from a particular industry, such as autoworkers or steel workers.(CIO - Congress of Industrial Organizations)

Collective Bargaining

The process by which union and management negotiate a labor agreement

Mediator

An impartial observer who helps resolve differences between union and management.

Binding Arbitration

Negotiation in which union and management must accept an impartial observer’s resolution of a dispute - Always a winner and always a loser - baseball

Strike

A union’s attempt to withold labor from a firm to stop production

CASES

mid to late 90s - international harvest only 50% of workers back

1999 - UPS managment couldn’t keep up, other option to UPS, took all of their business, UPS business plunged, gave workers everything they wanted