Earnings and Discrimination Chapter 19
Earnings and Discrimination Chapter 19
Differences in earnings in the U.s. Today The typical physician earns about $200,000 a year. The typical police officer earns about 50,000 a year The typical farm worker earns about $20,000 a year
Differences in Earnings in the U.S. Today • The typical physician earns about $200,000 a year. • The typical police officer earns about $50,000 a year. • The typical farm worker earns about $20,000 a year
What causes earnings to vary so much? Wages are governed by labor supply and labor demand Labor demand reflects the marginal productivity of labor In equilibrium, each worker is paid the value of his or her marginal contribution to the economy's production of goods and services
What causes earnings to vary so much? • Wages are governed by labor supply and labor demand. • Labor demand reflects the marginal productivity of labor. • In equilibrium, each worker is paid the value of his or her marginal contribution to the economy’s production of goods and services
Some determinants of equilibrium Wages o Compensating differentials ● Human capital Ability, effort, and chance °5 ignaling The superstar phenomenon
Some Determinants of Equilibrium Wages • Compensating differentials • Human capital • Ability, effort, and chance • Signaling • The superstar phenomenon
Compensating Differentials Compensating differentials refer to differences in wages that arises from nonmonetary characteristics of different ObS o Coal miners are paid more than others with similar levels of education Night shift workers are paid more than day shift workers o Professors are paid less than lawyers and doctors
Compensating Differentials • Compensating differentials refer to differences in wages that arises from nonmonetary characteristics of different jobs. • Coal miners are paid more than others with similar levels of education. • Night shift workers are paid more than day shift workers. • Professors are paid less than lawyers and doctors
Human Capital Human capital is the accumulation of investments in people The most important type of human capital is education o Education represents an expenditure of resources at one point in time to raise productivity in the future College graduates in the U.S. earn almost twice as much as workers with a high school diploma
Human Capital • Human capital is the accumulation of investments in people. • The most important type of human capital is education. • Education represents an expenditure of resources at one point in time to raise productivity in the future. • College graduates in the U.S. earn almost twice as much as workers with a high school diploma
Average annual earnings by Educational attainment 1980 2000 en High school, no college g $36,430$36,770 College graduates $52,492$69,421 Percent extra for college grads+44%+89% Women High school, no college $21,969$24,970 College graduates $29,663$42575 Percent extra for college grads +35% +70%
Average Annual earnings by Educational Attainment 1980 2000 Men High school, no college $36,430 $36,770 College graduates $52,492 $69,421 Percent extra for college grads +44% +89% Women High school, no college $21,969 $24,970 College graduates $29,663 $42,575 Percent extra for college grads +35% +70%
Why has the gap in earnings between skilled and unskilled workers risen in recent years International trade has altered the relative demand for skilled and unskilled labor Changes in technology have altered the relative demand for skilled and unskilled labor Ability, Effort, and Chance
Why has the gap in earnings between skilled and unskilled workers risen in recent years? • International trade has altered the relative demand for skilled and unskilled labor. • Changes in technology have altered the relative demand for skilled and unskilled labor. • Ability, Effort, and Chance
An alternatiⅤ e view of Education: Signaling o Firms use educational attainment as a way of sorting between high-ability and low- ability workers o It is rational for firms to interpret a college degree as a signal of ability
An Alternative View of Education: Signaling • Firms use educational attainment as a way of sorting between high-ability and lowability workers. • It is rational for firms to interpret a college degree as a signal of ability
The Superstar Phenomenon Superstars arise in markets that exhibit the following characteristics o every customer in the market wants to enjoy the good supplied by the best P roducer e The good is produced with a technology tha at makes it possible for the best producer to supply every customer at a low cost
The Superstar Phenomenon • Superstars arise in markets that exhibit the following characteristics: • Every customer in the market wants to enjoy the good supplied by the best producer. • The good is produced with a technology that makes it possible for the best producer to supply every customer at a low cost