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Lecture

ECO101H1 Lecture Notes - Marginal Revenue, Tiger Woods, G1 Phase


Department
Economics
Course Code
ECO101H1
Professor
James Pesando

Page:
of 3
Topic 13 Earnings and Discriminations
(Jan 12th)
Outline:
1. The Impact of a Union;
2. Correlates of Marginal Revenue Product (MRP/VMP);
3. Male-Female Earning Gap: discrimination?
4. Pay Equity
Observation:
1. Celine Dion: $30million/yr;
Tiger Woods: $30million/yr;
2. Slightly less talented professionals: $50,000/yr;
3. Earning Differential has increased sharply over time;
Can VMP (economics) explain?
Winner-Take-All Markets
Singers: Now income derived from CDs; everyone can consume the best
19th Century income derived from concerts;
Golf: Now income derived from TV (everyone can consume the best);
19th Century income derived from ticket sales at tournaments;
However, Best plumber earns (modestly) above average hourly wage;
Reason: all customers cannot consumer the services of the best plumber
The Impact of a Union
Correlates of VMP
1. Education
Male, 2001, Full-Time
High School
$41,218
College
$49,224
University
$71,352
N NC No. of Workers
Wage
DDL (=VMP)
SSL
WC
Union wage
Union raises wage rate;
Union reduces employment in this industry;
With the Union, workers are paid VMP;
Higher wage = higher VMP = higher MP = less workers
employed.
2. Experience (Age)
Males, 2001, Full-Time
University Degree, Age 25-34;
$52,944
University Degree, Age 35-44;
$74,279
University Degree, Age 45-54
$79,496
3. Hour of Work
Males, 2001
Full-Time
$49,224
All (F/T, P/T, Seasonal)
$38,347
Male Female Earning GAP
1. Raw Data
All employed males, 2001: $38,347
All employed females, 2001: $24,930 (65% of male earnings)
2. F/T, with university degree:
Male: $71,352;
Female: $48,158 (67.5% of male earning)
3. Age 25-34, F/T, with university degree:
Male: $52,944;
Female: $40, 616 (76.7% of female earning);
DISCRIMINATION (??)
How do economists define discriminations?
Economics: W=VMP;
Economists define a situation as discrimination when:
Difference in wages not explained by differences in VMP.
Example: Age 25-34, F/T, with university degree:
Male: $52,944;
Female: $48,158
Difference in VMP or Discrimination?
Possible factors in explaining pay gap
1. Hour of work (male may overwork more);
2. Gender distribution in different Occupation (e.g. Librarian & Engineer)
Canada, F/T, 2001:
Wage
Percent Females
Librarians
$54,648
77.2%
Civil Engineer
$72,938
9.2%
Pay Equity (Comparable Worth)
1. Concern: certain job held mostly by females pay less than comparable jobs held mostly by males.
2. Economic Issues
-- Do these differences in earnings reflect differences in productivity (VMP) or discriminations?
-- When market DD,SS are interrupted by pay equity legislature, there might be unintended side effects;
1. Effects of Pay Equity Legislature
Market for Librarians Markets for Civil Engineers
2. Pay Equity Legislature set WL = WE
Result: employment of librarians declines; excess supply of librarians
3. After Pay Equity: suppose demand for engineers increase.
i) If WE unchanged, excess demand for engineers (shortage in supply);
ii) If WE rises, then:
-- i) if WL does not rise, violates pay equity;
-- ii) if WL does rise, employment of librarians falls further.
NL NL N
Wage
PPrice
ee
NE N
Wage
PPrice
ee
WE
PP
ric
e
ee
WE
PP
ric
e
ee
WL
PP
ric
e
ee