Eleanor reports

Eleanor reports

Is _________ overpaid?

Productivity and pay

Pay is a set of incentives, both to workers and employers

Productivity and pay

Pay is a set of incentives, both to workers and employers

People are __________ resources who’s labor have ___________ _______.

Productivity and pay

Pay is a set of incentives, both to workers and employers

People are __________ resources who’s labor have ___________ _______.

Therefore, pay is a way of allocating those scarce resources… you and everybody else who will enter workforce

Productivity and pay

What determines how much people get paid?

Supply and demand

What determines how much people get paid?

Supply and demandBigger demand for engineers than for baristas… it

takes years of education to be an engineer; a couple of hours to be a barista

What determines how much people get paid?

Supply and demandBigger demand for engineers than for baristas… it

takes years of education to be an engineer; a couple of hours to be a barista

But we also have plenty of people with Ph.Ds who work as waiters or baristas. No demand for doctors of philosophy or 14th century French poetry except in universities

What determines how much people get paid?

But not it’s just scarcity relative to baristas; it’s the ability of the engineer to add to the company’s earnings (profits) that makes employers willing to hire… and pay a lot more for the engineer

What determines how much people get paid?

But not it’s just scarcity relative to baristas; it’s the ability of the engineer to add to the company’s earnings (profits) that makes employers willing to hire… and pay a lot more for the engineer

A concert promoter can make money hiring Taylor Swift for $150,000 for a night… but will lose money hiring a better but unknown singer for $1,500 a night

What determines how much people get paid?

Productivity

Measure of output from production processes per unit of input

Productivity

Measure of output from production processes per unit of input

Often measured in labor hours: Sally made 20 lattes per hour; Bob made only 18. Sally is more productive, all thing being equal

Productivity

Measure of output from production processes per unit of input

Often measured in labor hours: Sally made 20 lattes per hour; Bob made only 18. Sally is more productive, all thing being equal

But things often aren’t equal: Sally uses the QXR173 Turbo Espresso Max machine while Bob has only the Wal*Mart “Frap-o-Matic”

Productivity

Productivity depends on the quantity and quality of other inputs as well as the worker

Productivity

Productivity depends on the quantity and quality of other inputs as well as the worker

The quality of equipment, management and supporting workers all help determine a given worker’s productivity

Productivity

Productivity depends on the quantity and quality of other inputs as well as the worker

The quality of equipment, management and supporting workers all help determine a given worker’s productivity

Productivity can also be reduced by other factors over which you have no control: transportation costs, corruption, poor management, substandard raw materials

Productivity

“There are three kinds of lies: lies, darned* lies, and statistics.”

* Word substitution by your teacher

Mark Twain

U.S. productivity

U.S. has highest productivity levels as measured by “value added per person employed per year”

U.S. productivity

U.S. has highest productivity levels as measured by “value added per person employed per year”

Americans work more hours per year than any other industrialized nation

U.S. productivity

International Labor Office: “Americans work 137 more hours per year than Japanese workers, 260 more hours per year than British workers, and 499 more hours per year than French workers.”

U.S. productivity

What about “fair” wages, workers being “exploited” and “living wage”?

Pay differences

What about “fair” wages, workers being “exploited” and “living wage”?

Attempts to make salaries/wages something other than signals to guide SRTHAU makes them less efficient, therefore impacting society as whole

Pay differences

The “rich” and “poor” can be the same people at different stages of life

Income distribution

The “rich” and “poor” can be the same people at different stages of life

75% of those who were in the bottom 20% income brackets move to the top 40% during the next 16 years

Income distribution

The “rich” and “poor” can be the same people at different stages of life

75% of those who were in the bottom 20% income brackets move to the top 40% during the next 16 years

Why: longer in the workplace, more skilled, more experienced, therefore more desired by employers

Income distribution

More people in the top 5% income earners are over age 45… earning 3X the wages of people in 20s

Income distribution

More people in the top 5% income earners are over age 45… earning 3X the wages of people in 20s

Media distorts the whole issue: the fact is that it is not an issue of “poor” and “rich” classes because people typically move up over time

Income distribution

More people in the top 5% income earners are over age 45… earning 3X the wages of people in 20s

Media distorts the whole issue: the fact is that it is not an issue of “poor” and “rich” classes because people typically move up over time

Society as whole does not decide how to distribute income… those who get the benefit of an individual’s work decide what to pay

Income distribution

“Idle rich” Only 2% of richest Americans inherited their wealth

Myth alert!

“Idle rich” Only 2% of richest Americans inherited their wealth

Among top earners, 62% work more than 50 hours a week, 35% work more than 60 hours (8.6 hours, seven days a week)

Myth alert!

“Idle rich” Only 2% of richest Americans inherited their wealth

Among top earners, 62% work more than 50 hours a week, 35% work more than 60 hours (8.6 hours, seven days a week)

Most billionaires such as Steve Jobs, Warren Buffett, Bill Gates work prodigious hours… even after becoming mega-rich

Myth alert!

Most poor people are hard working

Myth alert II!!

Most poor people are hard workingOf the 7.6 million families in poverty, 80% did not

contain one adult who worked full time

Myth alert II!!

Most poor people are hard workingOf the 7.6 million families in poverty, 80% did not

contain one adult who worked full time55% of poor households are headed by single women –

just 17% of whom work full time

Myth alert II!!

Beware people bearing “statistics”E.g., income per household only rose 6% from 1969 to

1996.

Income distribution

Beware people bearing “statistics”E.g., income per household only rose 6% from 1969 to

1996But per capita income rose 51% over the same

period!!!

Income distribution

Beware people bearing “statistics”E.g., income per household only rose 6% from 1969 to

1996But per capita income rose 51% over same period!!!Why? Smaller households

Income distribution

What is valued in the marketplace is generally no longer muscle (ex sports); it’s your mind

Differences in skills

What is valued in the marketplace is generally no longer muscle (ex sports); it’s your mind

This has resulted in reduction or elimination of premium for male workers in ever more occupations

Differences in skills

The idea of treating people as the same, no matter where they come from or look like, is relatively new (in the marketplace: Jesus figured this out 2,000 years ago, see Gal. 3:28)

Job discrimination

The idea of treating people as the same, no matter where they come from or look like, is relatively new (in the marketplace: Jesus figured this out 2,000 years ago, see Gal. 3:28)

Why do women still tend to earn less then men?

Job discrimination

The idea of treating people as the same, no matter where they come from or look like, is relatively new (in the marketplace: Jesus figured this out 2,000 years ago, see Gal. 3:28)

Why do women still tend to earn less then men?In a word: motherhood. Women tend to leave the

workplace at some time to have children, thus losing experience

Job discrimination

Women without children earned 95% what men earned; women with children earned 75%

Job discrimination

Women without children earned 95% what men earned; women with children earned 75%

Dr. S contends that blacks, whites and Hispanics with same age and IQ usually have incomes within a few thousand dollars of each other

Job discrimination

President Obama is pushing for the “Paycheck Fairness Act”

But government has a ‘solution’

President Obama is pushing for the “Paycheck Fairness Act”

Law would insert federal government into determining “comparable worth” – e.g., welders are overwhelmingly male, admin assistants are overwhelmingly female. Feds could require equal pay for both

But government has a ‘solution’

President Obama is pushing for the “Paycheck Fairness Act”

Law would insert federal government into determining “comparable worth” – e.g., welders are overwhelmingly male, admin assistants are overwhelmingly female. Feds could require equal pay for both

Another name: Lawyer Full Employment Act

But government has a ‘solution’

Labor does not exist in a vacuum. We all need various tools to do our jobs… computer, griddle, backhoe, 2006 Fender Telecaster FMT HH (if you want to be a really cool professional guitarist)

Capital, labor and efficiency

Labor does not exist in a vacuum. We all need various tools to do our jobs… computer, griddle, backhoe, 2006 Fender Telecaster FMT HH (if you want to be a really cool professional guitarist)

There is competition between labor and capital in the free marketplace

Capital, labor and efficiency

Choice: many goods can be produced with either much labor and little capital, or much capital and little labor

Capital, labor and efficiency

Choice: many goods can be produced with either much labor and little capital, or much capital and little labor

Example: highly paid, unionized bus drivers and longer, more expensive buses

Capital, labor and efficiency

Choice: many goods can be produced with either much labor and little capital, or much capital and little labor

Example: highly paid, unionized bus drivers and longer, more expensive buses

Rule: capital tends to be scarcer and more expensive in poor countries while labor is abundant (Asian factories); the reverse is also true

Capital, labor and efficiency

“Government, even in its best state, is but a necessary evil; in its worst

state, an intolerable one.”

Thomas Paine

Chapter 10: “Controlled Labor Markets”

Assignment 3/5

Chapter 10: “Controlled Labor Markets”Write a 350-word essay: President Obama is proposing

to raise the minimum wage from $7.25/hour to $9/hour. Based on your reading of Dr. Sowell, what will happen if it’s enacted? Be specific and use his thinking… not your opinions!

Assignment 3/5