Chp 10: Human Capital and the
Labor Market
Objectives
p. 002
EPF.4 The student will demonstrate knowledge that many factors affect
income by
a) examining the market value of worker’s skills and knowledge
b) identifying the impact of human capital on production costs
c) explaining the relationship between a person’s own human capital
and the resulting income potential
d) explaining how changes in supply and demand for goods and
services affect income
Essential Understandings
p. 002
1.
2.
3.
Income for most people is determined by the market value of the productive resources they sell.
Businesses seek to lower production costs in order to increase profits.
As workers invest in their own human capital and become more skilled, they become more productive (i.e.,
can produce more in the same amount of time) which can lower the cost of production.
4. People’s incomes, in part, reflect choices they have made about education, training, skill development, and
careers. People with few marketable skills are likely to earn much less than people with more skills.
5. When people improve their knowledge and skills through education and/or experience, it is called an
investment in their human capital.
6. What workers earn depends primarily on the market value of what they produce and how much they add to its
production.
7. More productive workers—those who can produce more in a given period of time—are likely to be of greater
value to employers and earn higher wages than less productive workers.
8. Employers are willing to pay wages and salaries to workers because they expect to sell the goods and
services those workers produce at prices high enough to cover the wages and salaries and all the other costs
of production.
9. Changes in the prices for productive resources affect the incomes of the owners of those productive
resources.
10. Changes in supply and demand for specific goods and services often affect the incomes of the workers who
make those goods and services.
Essential Questions
p. 002
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
What determines market value of a resource?
How is the market value of a worker’s skills and knowledge determined?
What is human capital?
How do improvements in human capital affect productivity?
How do improvements in productivity affect cost of production?
What is an investment in human capital, and how might it affect one’s income?
Why might skills and knowledge make a worker more productive?
Why might employers pay higher wages to more productive workers?
What is market value?
How does the market value of what one produces affect one’s income?
What is derived demand?
How can increases or decreases in the demand for a good or service affect the income of the producers of
those goods and services?
Preview
p. 003
I. What is Income?
p. 003
1. To earn income, people sell productive resources. These include
their labor, capital, and natural resources and entrepreneurial
talents.
2. In a market economy, the market value of a resource is determined
primarily by the supply and demand for that resource.
3. A wage or salary is the price of labor; it usually is determined by the
supply of and demand for the skills and knowledge (human
capital) a person has.
II. What Trends Are Shaping Today’s Labor Market?
p. 004
1. In recent decades, an influx of women and minorities has resulted
in a larger and more diverse labor force.
2. Job growth has shifted from manufacturing to the service sector.
Knowledge workers—people like financial experts who develop or
apply information in the workplace—have become increasingly
important. There has been an increased role in consultants in the
workforce.
II. What Trends Are Shaping Today’s Labor Market?
p. 004
3. Other trends changing the labor market include outsourcing,
offshoring, temping, and telecommuting.
4. Globalization has impacted the U.S. labor force by offshoring some
jobs to other countries, in shoring some jobs to the United
States, and increasing global competition.
5. Outsourcing is when part of a job is done outside a company, as
when a clothing company in Houston uses a textile-manufacturing
plant in Dallas. Offshoring is when work is done outside the
country, as when a clothing company in California uses a textilemanufacturing plant in Vietnam.
III. What Determines How Much Workers Earn?
p. 004
1. Market value is the price a seller can expect to receive for a product
in a competitive marketplace.
2. What workers earn depends primarily on the market value of the
goods and/or services they produce (i.e., what the market is willing
and able to pay) and how much they add to the process of its
production.
3. Much like the equilibrium price of goods and services, an equilibrium
wage results when labor demand and labor supply come into
balance.
III. What Determines How Much Workers Earn?
p. 004
4. Workers with skills and education also earn more when there is a
smaller supply of people who can do the job because businesses
and consumers who want those higher skills must pay more.
5. People with more skills and knowledge tend to earn more. For this
reason, many people choose to invest in their human capital
through education and/or training.
High
School
Dropout
High
School
Grad
Some
CollegeNo
Degree
Associate Bachelor’
Degree
s Degree
Master’s
Degree
Doctorate
Men
$29,000
$40,000
$46,000
$50,000
$64,000
$81,000
$101,000
Women
$21,000
$30,000
$33,000
$38,000
$47,000
$59,000
$77,000
III. What Determines How Much Workers Earn?
p. 004
6. Other factors that influence wages include minimum wage laws,
working conditions, location, cost of living, fringe benefits such
as health insurance, and foreign competition.
High
School
Dropout
High
School
Grad
Some
CollegeNo
Degree
Associate Bachelor’
Degree
s Degree
Master’s
Degree
Doctorate
Men
$29,000
$40,000
$46,000
$50,000
$64,000
$81,000
$101,000
Women
$21,000
$30,000
$33,000
$38,000
$47,000
$59,000
$77,000
III. What Determines How Much Workers Earn?
p. 004
7. A difference in wages earned by various groups in society, called the
wage gap, exists for a variety of reasons. Nondiscrimination laws
and affirmative action programs have attempted to decrease wage
discrimination and reduce this gap.
8. Unskilled workers earn low pay because many people can qualify
for that work; employers do not have to pay more to attract these
workers.
The Wage Gap
p. 004
III. What Determines How Much Workers Earn?
p. 004
9. As people gain human capital (knowledge and/or skills) and practice
in a field, they become more efficient and productive in that field.
This can lead to higher income because employers prefer more
productive workers.
10.Increases in productivity tend to lower cost of production. If four
workers can accomplish the same amount of work in a day as five
workers, this is an increase in productivity which saves the business
the wages of one worker
IV. How Can You Increase Your Human Capital
p. 006
1. People should develop their human capital throughout their lifetimes.
They can start this process by identifying their abilities, interests,
and aspirations.
2. Obtaining a good education is an important step in building human
capital, as is securing necessary certification or licensing.
3. Through work experience and on-the-job training, people can gain
vital skills and knowledge that can be applied in future employment.
4. Some methods of developing human capital are not easily
quantifiable but are still very important. These include having high
personal standards, exhibiting a strong work ethic, and building
a network of friends and colleagues
V. How Does Demand for Other Things Affect My
Job?
p. 006
1. An increase in the demand for a good or service will lead to an
increase in demand for the resources needed to produce that
good or service. This condition is known as derived demand. The
opposite is also true.
2. Excess supply (surplus) can lead to a decrease in demand for
workers to produce additional supply.
VI. What Role Do Unions Play in the Labor Market?
p. 006
1. Historically, unions have helped workers defend their rights and
improve their pay and working conditions. Often this is achieved
through collective bargaining in which workers, represented by
their union, negotiate their conditions of employment with their
employers.
VI. What Role Do Unions Play in the Labor Market?
p. 006
2. A decline in manufacturing jobs and right-to-work laws that make it
illegal to require union membership have led to a decrease in union
membership since the 1970s. However, unions still help many
workers achieve concrete gains in the workplace.
a. Right to work laws – a union cannot require employees'
membership, payment of union dues, or fees as a condition of
employment, either before or after hiring
b. Lessens the effectiveness of unions
c. 24 states have right to work laws (including VA)