ECON 1 Lecture Notes - Lecture 16: Associate Degree, Human Capital, International Trade
#16 Tuesday 3/20 (Ch.19 The Labor Market)
Key question:
● Why do some people earn more than others?
Median Weekly Earnings, 2017
Chief executives
$1949
Lawyers
$1757
Physicians, surgeons
$1975
Architects & engineers
$1255
Management
$1230
Registered nurses
$1055
High school teachers
$987
Counselors
$808
Retail salespersons
$527
Waiters/waitresses
$401
All occupations
$747
Why Wages Differ
a) Labor demand (productivity)
b) Labor supply (how many similar workers there are)
Factors that determine D & S:
1. Human capital
2. Job characteristics
3. Effort
4. Chance
5. Discrimination
(1) Human Capital
● Human capital
○ Education
○ On-the-job training
○ Work experience
● Human capital affects productivity → labor demand → wages
Earnings by Education
Median weekly earnings
Less than H.S.
$438
H.S. diploma
$633
Associate degree
$727
Bachelor degree
$1,049
Master degree
$1,334
The Increasing Value of College
The gap between college-educated and non-college-educated workers is growing
Percentage difference for college graduates vs. high school diploma
1980
2015
Men
44%
89%
Women
35%
77%
Why is Education Becoming More Valuable?
1. International trade
a. Rising exports of goods made with skilled labor (Demand)
b. Rising imports of goods made with unskilled labor (Supply)
2. New technologies
increased demand for skilled workers, reduced demand for unskilled workers.
(Demand)
3. Immigration of low skilled workers (supply)
(2) Job Characteristics
● The more risky, unpleasant, or stressful a job is, the higher the equilibrium wage. Otherwise, people
would not accept to do those jobs
● Examples:
○ Coal miners and firefighters are paid more to compensate them for the extra risks.
○ Night shift workers are paid more.
○ Artists are paid less.
Compensating Differentials
●Compensating differential: a difference in wages that arises to offset the nonmonetary characteristics
of different jobs
● Policy: if undesirable jobs are more costly to employers → less need for government regulation
Document Summary
Factors that determine d & s: labor demand (productivity, labor supply (how many similar workers there are, human capital, job characteristics, effort, chance, discrimination (1) human capital. Human capital affects productivity labor demand wages. The gap between college-educated and non-college-educated workers is growing. Percentage difference for college graduates vs. high school diploma. International trade: rising exports of goods made with skilled labor ( demand , rising imports of goods made with unskilled labor ( supply , new technologies increased demand for skilled workers, reduced demand for unskilled workers. Immigration of low skilled workers ( supply ) (2) job characteristics. The more risky , unpleasant , or stressful a job is, the higher the equilibrium wage. Examples: would not accept to do those jobs. Coal miners and firefighters are paid more to compensate them for the extra risks. Compensating differential : a difference in wages that arises to offset the nonmonetary characteristics.
