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Chapter 13Chapter 13

Earnings, Productivity, and Earnings, Productivity, and the Job marketthe Job market

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OverviewOverview

SignalingSignaling Sources of earning differencesSources of earning differences Productivity and employmentProductivity and employment Employment discriminationEmployment discrimination Non-pecuniary job characteristicsNon-pecuniary job characteristics Compensating wage differentialsCompensating wage differentials Automation and employmentAutomation and employment

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Signaling Signaling

Who would you hire?Who would you hire?

A.A.

B.B.

Person APerson A Person B Person B

hard workinghard working lazylazy

intelligentintelligent unintelligentunintelligent

critical critical thinkingthinking spaces outspaces out

persistentpersistent quitterquitter

experiencedexperiencedinexperienceinexperience

dd

effective time effective time managermanager disorganized disorganized

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Who Would You Hire?Who Would You Hire?Scenario 1Scenario 1

Person APerson A Person BPerson B Person CPerson C

School: HarvardSchool: Harvard

Degree: Business Degree: Business AdministrationAdministration

School: University School: University of Floridaof Florida

Degree: Business Degree: Business AdministrationAdministration

School: West School: West Virginia Community Virginia Community CollegeCollege

Degree: Business Degree: Business AdministrationAdministration

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Who Would You Hire?Who Would You Hire?Scenario 2Scenario 2

Person APerson A Person BPerson B Person CPerson C

School: Florida School: Florida StateState

Degree: FinanceDegree: Finance

GPA: 3.4GPA: 3.4

School: Florida School: Florida StateState

Degree: FinanceDegree: Finance

GPA: 4.0GPA: 4.0

School: Florida School: Florida StateState

Degree: FinanceDegree: Finance

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Who Would You Hire?Who Would You Hire?Scenario 3Scenario 3

Person APerson A Person BPerson B Person CPerson C

School: Florida School: Florida StateState

Degree: EconomicsDegree: Economics

GPA: 3.4GPA: 3.4

Minor: MathMinor: Math

Summer InternshipSummer Internship

Volunteer WorkVolunteer Work

School: Florida School: Florida StateState

Degree: EconomicsDegree: Economics

GPA: 3.4GPA: 3.4

Minor: SociologyMinor: Sociology

School: Florida School: Florida StateState

Degree: EconomicsDegree: Economics

GPA: 3.4GPA: 3.4

Minor: NoneMinor: None

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SignalingSignaling

The school you attend, the degree you The school you attend, the degree you get, the classes you take, your GPA, get, the classes you take, your GPA, your internship experience, are all your internship experience, are all signals about yourself that you send signals about yourself that you send to other people (including potential to other people (including potential employers)employers)

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Sources of Earning DifferencesSources of Earning Differences

1. Worker productivity and specialized 1. Worker productivity and specialized skillsskills

More productive and more highly More productive and more highly skilled workers earn more money.skilled workers earn more money.

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Sources of Earning DifferencesSources of Earning Differences

Higher output per worker Higher output per worker →→ higher wages higher wages

This is true:This is true:A. Across countriesA. Across countries: the reason : the reason

employees in the U.S. make more than employees in the U.S. make more than workers in most foreign countriesworkers in most foreign countries

B. Across timeB. Across time: reason people make more : reason people make more today than they did 50 years agotoday than they did 50 years ago

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Sources of Earning DifferencesSources of Earning Differences

Tournament PayTournament Pay: A type of : A type of compensation in which the top compensation in which the top performer receives higher rewards performer receives higher rewards than other competitors, even if the than other competitors, even if the others perform at only a slightly others perform at only a slightly lower levellower level

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Examples of Tournament PayExamples of Tournament Pay

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Sources of Earning DifferencesSources of Earning Differences

2. Worker preferences2. Worker preferences

Greater desire to make money = earn Greater desire to make money = earn more moneymore money

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Sources of Earning DifferencesSources of Earning Differences

3. Race and Gender3. Race and Gender

Employment Discrimination: Employment Discrimination: Restricting employment and earning Restricting employment and earning opportunities on the basis of race, opportunities on the basis of race, gender, or religion (not productivity)gender, or religion (not productivity)

A.A. Employer based discriminationEmployer based discriminationB.B. Customer based discriminationCustomer based discrimination

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Employment DiscriminationEmployment Discrimination

To isolate employment discrimination, we To isolate employment discrimination, we must:must:

1. Adjust for differences between groups in 1. Adjust for differences between groups in education, experience, and other education, experience, and other productivity related factorsproductivity related factors

2. Make comparisons between similarly 2. Make comparisons between similarly qualified groups of employees who differ qualified groups of employees who differ only in regard to race (or gender or only in regard to race (or gender or whatever you are testing).whatever you are testing).

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Employment DiscriminationEmployment Discrimination

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Employment DiscriminationEmployment Discrimination

Men Women

Actual Adjusted Actual Adjusted

White 100 100 100 100

African-American 77 84 89 92

American Indian 79 92 94 98

Asian-American 104 91 107 94

Mexican-American 65 88 73 93

Other Hispanic 75 88 83 92

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Other Sources of Earning Other Sources of Earning DifferencesDifferences

Immobility of laborImmobility of labor

Cost of living differencesCost of living differences

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Non-pecuniary job characteristicsNon-pecuniary job characteristics

Non-wage characteristics of a job that Non-wage characteristics of a job that influence how employees evaluate influence how employees evaluate the jobthe job

Such as:Such as:

Working conditions, prestige, variety, Working conditions, prestige, variety, location, freedom, responsibility, etc.location, freedom, responsibility, etc.

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Compensating wage differentialsCompensating wage differentials

Wage differences that compensate Wage differences that compensate workers for undesirable non-workers for undesirable non-pecuniary job characteristicspecuniary job characteristics

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AutomationAutomation

Automation: production technique that Automation: production technique that reduces the amount of labor reduces the amount of labor necessary to produce a good or necessary to produce a good or serviceservice

Often replacing people with Often replacing people with machinesmachines

Ex. Self check-out lines Ex. Self check-out lines

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AutomationAutomation

Is automation destroying jobs and Is automation destroying jobs and causing unemployment?causing unemployment?

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ReviewReview

1. What do we mean by signaling1. What do we mean by signaling

2. Know the sources of earning 2. Know the sources of earning differencesdifferences

3. Know the definition of tournament 3. Know the definition of tournament paypay

4. Know how to effectively study 4. Know how to effectively study employment discrimination (or employment discrimination (or anything else)anything else)

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ReviewReview

5. Know what we mean by non-5. Know what we mean by non-pecuniary job characteristics and pecuniary job characteristics and compensating wage differentialscompensating wage differentials

6. Know the relationship between 6. Know the relationship between automation and employment.automation and employment.

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Thank You!Thank You!