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CHAPTER TWENTY-EIGHT WAGE DETERMINATION INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Differentiate between nominal and real wages. 2. List several factors that have led to a rising level of real wages in the U.S. historically. 3. Explain and illustrate graphically how wage rates are determined in competitive and monopsonistic labor markets. 4. Find the equilibrium wage rate and employment level when given appropriate data. 5. List several methods used by labor organizations to increase wages and the impact each has on employment. 6. Explain and illustrate graphically how both an inclusive (industrial) union and an exclusive (craft) union would affect wages and employment in a previously competitive labor market. 7. Explain and illustrate graphically wage determination in the bilateral monopoly model. 8. Present the major points in the cases for and against the minimum wage. 9. Summarize empirical findings on how unions have affected U.S. wage rates. 10. List three major factors behind wage differentials. 11. Describe briefly salary systems in which pay is linked to performance rather than to time. 12. Describe the negative side effects of poorly planned incentive pay plans. 13. Define and identify terms and concepts listed at the end of the chapter. LECTURE NOTES I. Introduction A. Wage rates may be the most important price you will encounter in your life. B. This chapter explores some of the factors behind the determination of resource prices, particularly wage determination, since it accounts for three-fourths of our national income. C. There are six objectives in discussing wage determination. 1. Understanding the forces underlying the general level of wages; 2. Seeing how wage rates are determined in particular labor markets by presenting several representative labor market models; 3. Analyzing the impact of unions on the structure and level of wages; 4. Discussing the economic effects of the minimum wage; 5. Explaining wage differentials; and 6. Surveying a number of compensation schemes that link pay to worker performance. II. Labor, Wages, and Earnings 351
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Wage Determination A. Wages refer to the price paid for the use of labor . 1. Labor may be workers in the popular sense of the terms blue-collar and white-collar workers. 2. Labor also refers to professional people and owners of small businesses, in terms of the labor services they provide in operating their businesses. B. Wages may take the form of bonuses, royalties, commissions, and salaries, but in this text the term “wages” is used to mean wage rate or price paid per unit of labor time. C. It is important to distinguish between nominal and real wages. 1.
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