Wage Determination
How much should you get paid?
How Are Wages Determined?
O Many factors go into determining how much
someone gets paid
O Experience
O Past Performance
O Several Differing Theories
Noncompeting Categories of
Labor
O 4 categories w/ different levels of knowledge &
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skill
More training/skill = higher pay
Unskilled Labor – No training/skill
Semiskilled Labor – Mechanical skill & minimal
training
Skilled Labor – Higher education & training
Professional Labor – Highest level of knowledge
based education & managerial skills
Market Theory
O Supply & Demand determine
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wages
Low D + High S = Low $
High D + Low S = High $
Intersection of Supply & Demand
sets equilibrium wage
High wages due to family ties or
political reasons are only
exceptions
Theory of Negotiated Wages
O Bargaining strength of organized labor is a
factor that helps determine wages
O Strong unions force firms to pay more, firms
cannot afford labor stoppages
O Seniority – Workers that have been there
longer get paid more
Signaling Theory
O Employers willing to pay more to those with
certificates, degrees, or other “signals” that
show superior knowledge or ability.
O Firm that prefers to hire people with college
degrees
O Degree may not be needed for work, but
helped applicant get the job