1. THE LABOR MARKET
( with respect to Human Capital )
Principle #7: People’s Skills
Influence Their Income.
1

2. Relative Income: Why?
$5 million
$30,000
2

3. What determines
a person’s income?
The SUPPLY of and the
DEMAND for their (particular
brand of) HUMAN CAPITAL
3

4. High or Low Incomes
 if you have High DEMAND with low supply then you get
high income (wage rates)
 if you have Low DEMAND with high supply then you get
low income (wage rates)
 the Wage Rate is the measurement of the relative
scarcity of particular types of workers.
 If you want a high income you should develop skills and
capabilities in high DEMAND low SUPPLY occupations.
Make yourself stand out in the crowd.
4

5. to do: MAKE
YOURSELF
SCARCE!!!!
Fine ~ now how would or
should you go about
achieving this objective???
5

6. THE NEW LABOR MARKET
that was then and this is now
NOW
THEN
GLOBAL COMPETITON &
RAPIDLY CHANGING
BASIC SKILLS REQUIRED: TECHNOLOGIES
ASSEMBLY LINE
6

7. The United
States
Economy (a)
Services
Knowledge
Agricultural
7

8. Information
The United
States
Economy (b)
Imagination
Manufacturing
8

9. The DEMAND for Labor
is a Derived Demand
 Business managers hire workers to
produce a good or service to be sold
for a profit.
 Product demand changes so
particular jobs change.
 Transferable skills are useful.
 Education and training are ongoing.
9

10. Table I: Then & Now
Information and/or
Industrial Age Knowledge Age
Technology change Took years to accomplish Months, weeks to accomplish
Competition Local, state, national Global
Type of production Service, Information &
Manufacturing
Knowledge
Role of workers Manual Laborer Designer, Engineer or
Manager
Skill requirements Strength, dexterity, stamina Scans (see Table II)
Employment Lifetime with one employer Changes jobs at least 6 times.
Changes careers 3 times
Learning span Kindergarten-12th grade Lifetime 10

11. The Demand for Labor
is a Derived Demand
 Employers hire workers to help the
business produce goods and services.
 If the value of the workers’ production is
greater than the wage the workers are
being paid then the employer will keep the
workers. If the workers “production” value
is less than their wages the workers won’t
be kept.
11

12. The Principle of
Exchange
Employers will hire workers if they
gain more from hiring the workers
than the value the employer gives
up ~ via lost output ~ by not
making the hire.
12

13. CONSIDER
13

14. …..so ~ he’s identified his
“employment” problem ~
and what can we conclude
about your own particular
and “special” situation?
14

15. ( ceteris paribus )
All other things
“being equal”
You can count on your higher
education leading to your
higher lifetime income
15

16. Dreams Deferred [@ 2002]:
Average Earnings & Education for Adults
E $120,000
a $100,000
r $80,000
n Dropout
$60,000 High School
i
n $40,000 Some College
g $20,000 Associate's
s $0 Bachelor's
Master's
Education
Doctorate
Professional
Source: U.S. Census Bureau, Statistical Abstract of the United States: 2004 - 2005
16

17. remember: if you want to
make a good income you
should make yourself scarce.
 Develop marketable skills through:
 more education

more training
 What skills are likely to be marketable?
17

18. Table II: SCANS 2000
Skills Descriptions
Basics Reading, writing, mathematics, listening, speaking
Thinking Creative thinking, decision making, problem solving,
knowing how to learn, reasoning
Personal Responsibility, self-esteem, sociability, self management,
integrity
Resources Planning, organizing, monitoring, assessing, evaluating,
adjusting
Interpersonal Teamwork, teaching, serving clients/customers, leadership,
negotiating, working with people of diverse cultural backgrounds
Systems Understand social, organizational and technological
systems; monitor and correct systems
Information Acquiring and evaluating, organizing and maintaining, interpreting
and communicating, using computers to process information
Technology Selecting equipment and tools, applying technology to specific
tasks, maintaining and troubleshooting technologies, learning new
technologies 18

19. Basic Skills
 reading
 writing
 mathematics
 listening
 speaking
19

20. Thinking Skills
 reasoning
 visualizing
 creative thinking
 decision-making
 problem solving
 knowing how to learn
20

21. Personal Qualities
 responsibility
 self--esteem
 sociability
 integrity
 self-management
21

22. Resource Allocation
 planning
 organizing
 monitoring
 assessing
 evaluating
 adjusting
22

23. Interpersonal Skills
 team skills
 teaching
 leadership
 negotiating
 serving clients/customers
 working with people of diverse cultural
backgrounds
23

24. Systems Types - Social,
Organizational & Technological
 monitoring
 correcting
 understanding
24

25. Informational To Do
 acquiring and evaluating
 organizing and maintaining
 using computers to process
 interpreting and communicating
25

26. Technology To Do
 learning
 selecting
 keeping up to date
 applying to specific tasks
 maintaining and troubleshooting
26

27. To compete in a
global economy
you will need
these skills
27

28. The Mirror: An Incredibly Powerful
Package of Human Capital!
28

29. You are the only
one who can
develop your
human capital ~
not your
teachers nor
your parents ~
ONLY YOU
29

30. example: The Labor Market (a)
(Assume a wage of $100 per day)
Marginal Product Marginal
Workers Total
Revenue
Product Product Price Product
3 18 $15
4 30 12 $15 $180
5 40 $15
6 48 $15
7 54 $15
8 58 $15
30

31. example: The Labor Market (b)
(Assume a wage of $100 per day)
Marginal Product Marginal
Workers Total
Revenue
Product Product Price Product
3 18 $15
4 30 12 $15 $180
5 40 10 $15 $150
6 48 8 $15 $120
7 54 6 $15 $90
8 58 4 $15 $60
31

32. The Marginal Principle
in the Labor Market
A firm will hire workers up to the point
where their wage is equal to their
marginal revenue product
W = MRP
If the employer expect to gain more than
the employer gives up via wages paid
the employer will hire the workers.
32

33. The Hiring Decision and the
Constant Search for Substitutes
The Employer makes the decision
 to Hire YOU?
 or to Hire a Different Worker?
 or to Hire a Machine?
33

34. Main Points ~ Part I
 Relative wage is the measure of the relative
scarcity of particular workers.
Relative wages are not a matter of fair or moral
value.
The labor market of the 21st century will be
characterized by rapid technological change,
global competition, demand for highly skilled
workers, numerous job and career changes, and
constant upgrades of skills and knowledge.
34

35. Main Points ~ Part II
 The DEMAND for labor is a derived demand.
 Education and training improve human
capital and increase peoples’ expected
income.
 Relative wages are determined by SUPPLY
and DEMAND.
[+] High wages are earned by workers with very
scarce human capital skills ~ thus there is a low
SUPPLY of these workers with those “special” human
capital skills and a high DEMAND for those same
workers.
35

36. Main Points ~ Part III
[+] Lower wages are earned by workers with less
“special” human capital skills ~ thus there is a higher
SUPPLY of workers with similar human capital and a
lower DEMAND for those workers.
[+] Employers hire workers as long as the employer
expects to gain more than she gives up ~ thus as long as
the expected marginal revenue product of the worker is
greater than the wage the employee will be hired.
REMEMBER YOU NEED TO
MAKE YOURSELF SCARCE!!!!
36