Chapter 9: Labor
Section 1
Key Terms
• labor force: all nonmilitary people who are
employed or unemployed
• outsourcing: the practice of contracting with
another company to do a specific job that would
otherwise be done by a company’s own workers
• offshoring: the movement of some of a
company’s operations to another country
• learning effect: the theory that education
increases efficiency of production and thus
results in higher wages
Key Terms, cont.
• screening effect: the theory that the
completion of college indicates to
employers that a job applicant is intelligent
and hard-working
• contingent employment: a temporary
and part-time job
• guest workers: members of the labor
force from another country who are
allowed to live and work in the United
States only temporarily
Introduction
• How do economic trends affect workers?
– Economic trends affect
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Employment rates
Outsourcing and offshoring
The demographics of the work force
The level of education of the work force
Wages and benefits
Tracking the Labor Force
• Each month the Bureau of Labor Statistics
(BLS) assembles information on the labor
force—all nonmilitary people who are
employed or not employed.
Chapter 9, Section 1
Copyright © Pearson Education, Inc.
Slide 6
The Labor Force
• A person is considered employed if they
are 16 years or older and meet at least
one of the following requirements:
– They worked at least one hour for pay in the
past week
– They worked 15 hours or more without pay in
a family business
– They held jobs but did not work due to illness,
vacations, labor disputes, or bad weather.
Composition of the U.S. Labor Force
• People are considered unemployed if they are
either temporarily unemployed or if they are not
working but are looking for jobs.
Occupational Trends
• The job market is constantly changing.
– The United States, for example, began as an
agricultural society that gave way to heavy
industry in the early 1900s.
– Electronics came next as a major industry in
the 1950s, followed by computers opening
new employment opportunities in the 1970s.
Occupational Trends, cont.
• In the past decade, the
United States has shifted
from a manufacturing
economy to a service
economy.
– Many manufacturing
jobs have gone overseas
through outsourcing and
offshoring forcing many
Americans to find work
in other areas.
The Changing Labor Force
• Many people in today’s workforce seek better
employment opportunities by getting a college degree.
• People with advanced degrees can make more money
than those with lesser degrees and they are viewed by
employers as hard-workers.
Women in the Work Force
• The number of women in
the workforce has
drastically changed in the
last 50 years.
– Women were
encouraged to get an
education and increase
their human capital,
which led to more
women entering the
workforce.
– The increase in service
sector jobs also added to
the increase of women in
the workforce.
Temporary Workers
• Another trend in the workforce is the increase in
temporary workers, or contingent employment.
• Reasons for this trend include:
– The ability of firms to easily adjust their workforce to
changing demand for their output.
– Temporary workers are paid less and given fewer
benefits.
– It’s easier to discharge temporary workers and less
costly.
– Some workers prefer the flexibility of temporary work
Foreign-Born Workers
• Foreign-born workers have also influenced
the labor force in recent years.
• Guest workers are allowed to work for a
company that can show they cannot meet
their labor needs with native-born workers.
– Critics of guest workers say that they hold
down the wages of Americans.
– Supporters claim immigrant workers do jobs
that Americans are unwilling to do because
the wages are low and these companies can
charge less for their goods as a result.
Wages
• Economists also study trends in benefits and wages.
• Americans earn higher wages than people in many other
countries but in recent years the trend has been toward
slow growth in
earnings, as a
result of outsourcing
and deregulation.
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Benefits
• For many workers, benefits like pensions and
health insurance are a significant share of total
compensation.
– This share rose fairly steadily during the 1900s and
early 2000s.
– Employers are finding that these rising benefits costs
increase the cost of doing business and thus cut into
their profits.
• If such costs continue to rise, companies may
have to find ways to cut benefits, which may
prove unpopular with workers.
Chapter 9: Labor
Section 2
Key Terms
• derived demand: a type of demand that is set
by the demand for another good or service
• productivity of labor: the quantity of output
produced by a unit of labor
• equilibrium wage: the wage rate that is set
when the supply of workers meets the demand
for workers in the labor market
• unskilled labor: work that requires no
specialized skills, education, or training
• semi-skilled labor: work that requires minimal
specialized skills and education
Key Terms, cont.
• skilled labor: work that requires specialized skills
and training
• professional labor: work that requires advanced
skills and education
• glass ceiling: an unofficial barrier that sometimes
prevents some women and minorities from advancing
to the top ranks of organizations dominated by white
men
• labor union: an organization of workers that tries to
improve working conditions, wages, and benefits for
its members
• featherbedding: the practice of negotiating labor
contracts that keep unnecessary workers on a
company’s payroll
Introduction
• Why do some people earn more than
others?
– What people earn for what they do is largely a
matter of how many people are willing and
able to do the job and how much that job is in
demand.
– Like other goods, labor is a good that is
bought and sold.
Labor Demand
• The demand for labor comes from private
firms and government agencies that hire
workers to produce goods and services.
– Demand for labor is called derived demand
because it is set by the demand for another
good or service.
– In a competitive labor market, workers are
usually paid according to the value of what
they produce.
Supply of Labor
• The supply of labor comes from people willing to work for
wages.
• The higher the wage for a particular job, the larger the
quantity of labor supplied.
– According to the demand curve, if each cook works a 40hour work week, how many cooks will be hired at $12 an
hour and $16 an hour?
Equilibrium Wage
• What determines the
equilibrium wage of
labor?
– The equilibrium wage is
the wage rate, or price of
labor or services, that is
set when the supply of
workers meets the
demand for workers in
the labor market.
– At equilibrium there is no
pressure to raise or
lower wages.
Wage and Skill Levels
• In addition to varying according to labor
supply and demand, wages also vary
depending on workers’ skill levels and
education.
• Jobs are often categorized into four skill
levels:
– Unskilled labor
– Semi-skilled labor
– Skilled labor
– Professional labor
Wage and Skill Levels, cont.
• Labor supply and demand can create a
significant difference in pay scales for
workers with various skills.
– Doctors, for example, who have extensive
training and experience enjoy a high demand
for their services relative to the supply and,
therefore, earn higher wages.
– High levels of danger or physical or emotional
stress can affect the equilibrium wage for a
particular job as well.
Wages for High-Risk, Low-Risk Jobs
• These graphs show how wages compare for
similar jobs with different degrees of risk.
Wage Discrimination
• Some people are paid less not because of their
skill level but because of the social group they
belong to. This practice is known as wage
discrimination.
– Women and minority groups have both suffered wage
discrimination.
– Congress has passed several anti-discrimination laws
to prevent wage discrimination including:
• Equal Pay Act of 1963
• Civil Rights Act of 1964, which established the Equal
Opportunity Commission (EEOC)
Pay Levels for Women
• Despite protections, women still earn less
than men as a result of three factors:
– Women’s work
• Historically women have been encouraged to seek
careers in teaching, nursing, and clerical work,
which has led to a high supply of workers.
– Human capital
• Overall, women are less educated than men,
making them ineligible for high-paying, maledominated jobs.
Pay Levels for Women, cont.
• Women’s career paths
– Women are often perceived by employers as not
being interested in advancement.
Pay Levels Across Society
• Racial discrimination has
led to the wage gap for
minorities.
• Non-discrimination laws
are designed to give
minorities improved
access to education and
job opportunities so they
can close the wage gap.
Other Factors
• Minimum wage laws
and safety laws also
affect wages.
– Minimum wage
creates a minimum
hourly rate that
employers must pay
workers.
– Workers are willing to
work for lower wages
when jobs are safer.
Employer Actions and Labor Unions
• Employer actions and labor unions also
affect wages.
– Employer actions
• A company may try to cut labor costs, which in
turn, lowers wages. They often replace human
capital with physical capital.
– Labor unions
• Labor unions can affect wages by persuading
employers to increase their pay. Unions are a
much disputed aspect of the labor force in today’s
world.
Chapter 9: Labor
Section 3
Key Terms
• strike: an organized work stoppage intended to
force an employer to address union demands
• right-to-work law: a measure that bans
mandatory union membership
• blue-collar worker: someone who performs
manual labor, often in a manufacturing job, and
who earns an hourly wage
• white-collar worker: someone who works in a
professional or clerical job and who usually
earns a weekly salary
Key Terms, cont.
• collective bargaining: the process in which
union and company management meet to
negotiate a new labor contract
• mediation: a settlement technique in which a
neutral person, the mediator, meets with each
side to try to find a solution that both sides will
accept
• arbitration: a settlement technique in which a
neutral third party listens to both sides and then
imposes a decision that is legally binding for
both the company and the union
Labor Unions
• What can employees do who feel that they
are paid too little, work too many hours, or
work in unsafe conditions?
– Many workers choose to join labor unions to
deal with such issues.
– In the United States today, one out of every
eight workers belongs to a labor union.
– In the past, though, unions had a stronger
influence on the nation’s economy.
The Labor Movement
• Labor unions arose largely in response to
changes in working conditions brought about
by the Industrial Revolution in the early to
mid-1800s.
– Working conditions in factories were poor and very
dangerous.
– Skilled workers began to form unions to protect their
interests but many were fired for joining.
– In 1886, Samuel Gompers founded the American
Federation of Labor (AFL), which ignited the U.S.
labor movement.
The Labor Movement, cont.
• Many employers did not respond well to
unions and forced workers to sign yellowdog contracts, promising not to join
unions.
– In the 1930s, Congress passed measures that
protected unions. Union strength grew,
peaking in the 1940s at about 35 percent of
the nation’s non-farm workforce being
members.
– Checkpoint: Why did union membership rise
in the 1930s?
The Labor Movement, cont.
• Unions became the dominant force in
many industries, making money in
member dues and controlling the day-today operations of many industries.
• As they grew, some unions began to
abuse their power. As a result, companies
in need of improved efficiency in order to
stay competitive found unions to be an
obstacle.
The Movement Declines
– In 1947, Congress passed right-to-work laws,
banning mandatory union membership.
– Other reasons for decline include:
• The decline of manufacturing in the United
States, where unions were the strongest
• Rise of women in the workforce
• Movement of industries to the South, which
historically has been less friendly to unions
The Movement Declines, cont.
• Another theory for
union decline is that
other institutions now
provide many of the
services that had
been won in the past
by unions.
Change in Union Membership
Labor and Management
• A union gains the right to represent
workers at a company when a majority of
workers in a particular work unit vote to
accept the union.
• Once this happens, the company is
required to bargain with the union to
negotiate an employment contract.
– Contracts get negotiated through collective
bargaining.
Collective Bargaining
• The union brings the following goals to the
collective bargaining table:
– Wages and benefits
• The union negotiates for wage rates, overtime
rates, planned raises, and benefits.
– Working conditions
• Safety, comfort, worker responsibilities, and other
workplace issues are written into the final contract.
– Job security
• The contract spells out the conditions under which
a worker may be fired.
Strikes
• Sometimes agreements
cannot be reached
between the union and
management.
– In these instances,
unions may ask its
members to vote to
approve a strike, which
can cripple a company.
– A long strike can also be
hard on workers, since
they are not getting paid.
Outside Help
• If a strike continues for a long time, the two sides can
call in a third party to help settle the dispute.
– In mediation, a neutral person meets with each side to try to
find a solution that both sides will accept. This decision,
though, is
nonbinding.
– In arbitration, a
neutral third party
listens to both
sides and imposes
a decision, which
is legally binding.