UNIT 4 NOTESBusiness and Labor

Unit 4, Lesson 1Notes

INTRODUCTION

Entrepreneurs must make many decisions when starting a business

One of the first decisions they face is what type of business organization best serves their interests

A business organization is an establishment formed to carry out commercial enterprise

I. SOLE PROPRIETORSHIP

A. Definition: Business owned and operated by a single entrepreneur.

1. Ex.: bakery, hair dresser, bike shop, etc.

B. Advantages1. Easy to organize / start (business license, site license, name)2. Few regulations3. Own boss4. Keep all profit

C. Disadvantages1. Hard to expand due to lack of $ (physical and human capital)2. Benefits of specialization hard to achieve in small scale

operations. 3. Unlimited Liability – if business doesn’t succeed, creditors

can file claims against owners personal property (house, car, etc)

D. Most numerous type of business organization in USA

II. PARTNERSHIPA. Definition: 2 or more individuals operating a

business.B. Types

1. General Partnership – everyone shares equally2. Limited Partnership – one person has all liability,

others simply give $$C. Advantages

1. Easy to organize2. Greater specialization in management/ operations

possible1. Each partner has something to offer

3. Easier to get start-up - capitalD. Disadvantages

1. Partners may disagree on basic policies2. The continuity of a partnership is uncertain (death,

withdraws)3. Unlimited Liability for one of the members in a

Limited Partnership

III. CORPORATION• Definition: Companies owned by many

people through the sale of shares/ stocks (A certificate of ownership in a corporation)

• Types of corporations:– Closely-held: Stock given to select people– Publicly-held: Many shareholders who buy and sell

freely• Corporation treated as one person.

– Ex: It can own property, pays taxes, sue and be sued, etc.

• Creating a corporation requires Permission from the state to form Sale of stocks Board of Directors – elected by shareholders

• Account for 80% of all sales in the US.

D. ADVANTAGES OF CORPORATIONS

Easy to raise financial capital – easy to grow

Professional Management (CEOs) Limited Liability – can’t get in trouble for

what corporation does – can only lose money invested

Longevity – doesn’t die with a proprietor, stock can be bought and sold

E. DISADVANTAGES OF CORPORATIONS Can be very difficult to get started Business practices heavily regulated by

shareholders & government Original owners may lose control of the

company – board of directors run corporations

Double taxation of profits – corporation can be taxed by government

When income is made, it gets taxed (Dividends) Income is then split among shareholders which

is also taxed Principal-Agent Problem: Conflict of

interest between CEOs/Workers and the Board of Directors.

IV. MULTINATIONAL CORPORATION

Multinational corporations – Corporations that operate in more than one country Must follow all regulations in each country Can provide jobs and products worldwide Can undeservedly influence cultures and politics

in countries

Unit 4, Lesson 2Notes

BUSINESS FRANCHISES

A business franchise is a semi-independent business that pays fees to a parent company In return, the business is given the right to sell

certain products Ex. McDonald’s, Wendy’s, etc.

Parent company is called the franchiser

BUSINESS FRANCHISES

Advantages: Business comes with a built-in reputation Management training/support Standardized quality National advertising

Disadvantages: High franchise fees Strict operating standards Purchasing restrictions for supplies Limited product line

COOPERATIVE

A cooperative is a business organization that is owned and operated by a group of individuals for their shared profit

3 types: Consumer cooperatives – Retail operatives

owned and operated by consumers (Ex. Sam’s Club)

Service cooperatives – Cooperatives that produce a service, rather than a good (Ex. Adam’s Electric)

Producer cooperative – agricultural marketing cooperatives that help members sell their products (Ex. Ocean Spray, Land O Lakes)

NON-PROFIT ORGANIZATIONS A Non-Profit Organization is set up like a

business but does not operate for profit – they usually benefit society (Ex. YMCA, Red Cross)

Government exempts them from income taxes Almost all provide services, not goods 4 types:

Professional – work to improve image, skill level, working conditions (Ex. National Educational Assoc., American Management Association for businesses)

Business – c Trade – Promote interests of particular industries (Ex.

American Marketing Assoc.) Labor Unions – Group of workers who strive to improve

conditions, hours, wages, etc.

Unit 4, Lesson 3Notes

How do economic trends affect workers?

TRACKING THE LABOR FORCE MARKET

How do economists know how the labor force is changing?

Each month, the Bureau of Labor Statistics (BLS) surveys households to track any changes

Economists define labor force as all non-military people who are employed or unemployed

EMPLOYMENT

Economists consider people to be employed if they are at least 16 and meet at least 1 of these requirements: Worked at least 1 hour for pay in the last week They worked 15 or more hours without pay in a

family business They held jobs but did not work due to illness,

vacation, bad weather, labor disputes

UNEMPLOYMENT

People who do not meet any of those requirements are counted as unemployed if they are either temporarily without work or are not working but have worked for jobs in the last 4 weeks

So, to be considered unemployed a person must either have work lined up or be actively searching for a job For example, full time students, stay at home

moms, etc. are NOT considered unemployed – they aren’t looking for work

OCCUPATIONAL TRENDS – A CHANGING ECONOMY

At its founding, the U. S. was a country of farmers

In the 1800’s there was a change in the economy with the Industrial Revolution

In the early 1900’s manufacturing became the powerhouse of the U. S.

By the 1950’s it was technology – TV’s and radios – and factory jobs were key

In the 1970’s it was a change to computer technology – “Information Age” Shift from a manufacturing economy to a service

economy

EFFECTS OF INTERNATIONAL COMPETITION

As the service industry increases, the U. S. is losing manufacturing jobs

In the past, goods sold in the U. S. were manufactured in the U. S.

Now, capital and labor are mobile – American companies can build factories in countries where there are lower wages

This means there is less and less demand for non-skilled workers in the U. S. This also means that the human capital factor plays

a huge role in hiring – more knowledge is needed Since there are few highly skilled workers they will

be paid more

TRENDS IN WAGES

Economists also study how the labor force is terms of wages and benefits

Earnings for Americans over the last 20 years have been good compared to other countries, but have gone down But, added benefits (health insurance, retirement

funds, etc.) have gone up This also means that as the cost of benefits goes

up, wages will have to go down in order for businesses to pay for such items

Unit 4, Lesson 4 Notes

LABOR AND WAGES

Just like any good or service , labor is in supply and demand

It’s a commodity that can be bought and sold Wages are high in professions where supply

is low and demand is high So a worker’s earnings depend on conditions

that exist in the labor market

SUPPLY AND DEMAND FOR LABOR

Employment or unemployment in a labor market depends on how closely the demand for workers meets the supply of workers looking for jobs

The demand for labor comes from businesses who need workers

Demand for labor is called derived – it is set by WHAT the worker produces (ex. The demand for cooks in a market depends on the demand for restaurant meals)

Productivity (value of output) can change a worker’s demand along with competition

SUPPLY OF LABOR

The higher the wage, the more people are attracted to want that particular job

Thus, the supply of workers goes up because more people want the job and are willing to get the needed human capital to get it

EQUILIBRIUM WAGE

Equilibrium wage is the wage that produces neither excess supply of workers nor excess demand for them.

At equilibrium there is no pressure to raise or lower the wage, everyone’s needs are met

Unit 4, Lesson 5Notes

How can workers best meet the challenges of a changing

economy?

SKILL AND WAGES Skills and wages are normally separated into

4 categories:Unskilled labor – Requires no specialized

skills, education, or training. Workers normally earn an hourly wage. (Ex. Dishwashers, janitors, fastfood)

Semi-skilled labor – Requires minimal specialized skills and education. Usually earn an hourly wage. (Ex. Short-order cooks, lifeguards, cashier)

SKILL AND WAGES

Skilled labor – Requires specialized skills and training to do tasks that. Most require little supervision, but are paid hourly wage. (Ex. Bank tellers, plumbers, carpenters)

Professional labor – Requires advanced skills and education. Usually white collar workers who receive a salary. (Ex. Teachers, Doctors, Computer programmer)

WAGE DISCRIMINATION

Just like setting prices, the government can also set wages in order to bring them closer to equilibrium

Wage discrimination occurs when people with the same job, same skills and education, same job performance, and same seniority receive different pay

WAGE DISCRIMINATION

The 1960’s saw a time period when laws were passed that prevented wage discrimination: Equal Pay Act of 1963 – Males and females in

same job should receive same pay Civil Rights Act of 1964 – Prevent job

discrimination based on gender Equal Employment Opportunity Commission

established to make sure companies are following laws

OTHER FACTORS AFFECTING WAGES

Minimum Wage laws: In 1938, minimum wage was established that made all businesses pay employees nothing below the lowest amount allowed by law. It also required companies to pay workers

overtime for anything over 40 hours / week Safety laws: When the government passes

laws that requires safety standards it can lower wages because people would be more willing to perform certain jobs

Unions: Fight for higher wages Employers finding other people / machines to

perform job

WHAT’S YOUR WORKING PLAN?

Use http://www.bls.gov/oco to create your working plan.

Be sure to answer questions 1-5 on the last page; you do not, however, need to follow the italicized

directions at the bottom.

This is due on Thursday if you do not complete it today.

http://www.pbs.org/teachers/access-analyze-act-economy/additional-resources/