FIN 30220: Macroeconomics Labor Markets. The US Labor Market by the numbers…* Total Population 321M “Ineligible to work” 71M Under 16 years old Inmates.

FIN 30220: Macroeconomics

Labor Markets

The US Labor Market by the numbers…*

Total Population

321M

“Ineligible to work”

71M

• Under 16 years old• Inmates of institutions (penal,

mental, homes for the aged)• Active duty military

Employed

149M

*As reported by the household survey (Bureau of Labor Statistics)

Unemployed

8.5MNot Participating

92.5M

• To be considered “unemployed”, you must have looked for work over the last 30 days. Otherwise, you are “not participating”

Total Population

321M

“Ineligible to work”

71M

Employed

149M

Unemployed

8.5MNot Participating

92.5M

The US Labor Market by the numbers…*

*As reported by the household survey (Bureau of Labor Statistics)

Civilian Employment-Population Ratio

Total employment divided by the eligible population

Eligible Population = Employed + Unemployed + Not Participating149

250*100 = 59.6%

“Official” Unemployment Rate (U-3)

Unemployment divided by the Labor Force

Labor Force = Employed + Unemployed

8.5157.5

*100 = 5.4%

Participation Rate

labor force divided by the eligible population

157.5 *100 = 63%250

1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 20130.0

2.0

4.0

6.0

8.0

10.0

12.0

NBER Recession Dates

Une

mpl

oym

ent R

ate

Unemployment in the US

*Source: Bureau of Labor Statistics

Non Recession Average: 5.8%Recession Average: 6.1%

Current = 5.5%

December 198210.8%

May 19532.5%

To be considered “employed” you only need to have a job (no distinction between full time or part time)To be considered “unemployed”, you must have looked for work over the last 30 days. Otherwise, you are “not participating”.

Alternate Measures of Unemployment in the U.S.

Discouraged Workers

• Persons who are not in the labor force

• Want to and are available to work

• Have looked for work over the year, but not over the last 4 weeks

• Specific reason cited for not looking for work is that they don’t believe there is a job available

Marginally Attached Workers

• Persons who are not in the labor force

• Want to and are available to work

• Have looked for work over the year, but not over the last 4 weeks

• Any reason cited for lack of job search

Part Time for Economic Reasons

• Working less than 35 hours per week

• Want to and are available to work full time

• Gave an economic reason (Hours cut, unable to find full time work) for lack of a full time job

Alternate Measures of Unemployment in the U.S.

*From the latest household survey, BLS

Category May 2014

Eligible Population 250M

Labor Force 157.5M

Employed 149M

Unemployed 8.5M

Discouraged Workers 600,000

Marginally Attached Workers 1.8M

Part time for Economic Reasons 6.6M

U-4 Unemployment Rate

Unemployed plus discouraged workers divided by the labor force plus discouraged workers

9.1158.1

*100 = 5.8%


Unemployed plus discouraged workers plus marginally attached divided by the Labor Force + discouraged workers + marginally attached

10.9159.9

*100 = 6.8%


Unemployed plus discouraged workers plus marginally attached workers plus part time for economic reasons divided by the Labor Force + discouraged workers + marginally attached workers

17.5159.9

*100 = 10.9%

Recall, the “official” (U-3) unemployment rate is 5.5%

Note: U-1 unemployment deals with long term unemployment and U-2 deals with temporary jobs

Let’s look at the US over the years since the last recession…

2007 2008 2009 2010 2011 2012 2013 2014 20154.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0Peak = 10.0%October 2009

Current = 5.5%

Recession Recovery

January 20074.6%

2008 2009 2010 2011 2012 2013 2014 2015

-1000

-800

-600

-400

-200

0

200

400

600

Average = -361,000/mo.

Average = 143,000/mo.

Monthly change in payrolls

280,000 in May 2015

8 million jobs lost during the recession

10 million jobs gained since the end of the recession

June 2009

Let’s do a back of the envelope calculation….population grows at around 1.5% per year. Let’s assume everybody enters the workforce at 16 and retires after 45 years.

Now (2015)45 years ago

(1970)

Eligible population = 107M

1.5% x 107M = 1.60M Entering the workforce 1.60M retiring

Eligible population = 208M

1.5% x 205M = 3.12M Entering the workforce

3.12M – 1.60M = 1.52M / 12 = 126,000 per month!

16 years ago(1999)61 Years ago

(1954)

1.60M

8 million jobs lost during the recession

8,000,000 17,000 = 470 months

To get back to “normal”

(~40 years)

156,000 Jobs created- 126,000 to satisfy population growth 33,000 lost jobs recovered per month

2008 2009 2010 2011 2012 2013 2014 2015

-1000

-800

-600

-400

-200

0

200

400

600

June 2009


Average = 143,000/mo.

1981 1982 1983 1984 1985

-600

-400

-200

0

200

400

600

800

1000

1200

Average = -177,000

Average = 265,000


3,000,000 142,000 = 21 months

To get back to “normal”

(~2 years)

3,000,000 jobs lost

For comparison purposes, during the recovery following the 81-82 recession, we created almost twice as many jobs per month

Lets compare the current recession/recovery to the last few

2 years

How can the unemployment rate drop so quickly with so few jobs being created?

Beginning of recovery

Recession Beginning

Recession Recovery

Let’s look at the US over the years since the last recession…

January 2007 October 2009 May 2015

Category Jan 2007


Labor Force 153M

Employed 146M

Unemployed 7M

Employment Rate 63.5%

Unemployment Rate 4.6%

Participation Rate 66.5%

Category Oct 2009


Labor Force 154M

Employed 139M

Unemployed 15M



Participation Rate 64.9%

Category May 2015


Labor Force 157.5M

Employed 149M

Unemployed 8.5M



Participation Rate 63%

The primary reason for the decline in the unemployment rate over the past 6 years is the drop in labor force participation!

If we had the same participation rate today as we did in 2007, the unemployment rate would be 10.3%!

This decline in labor force participation began it’s decline prior to the last recession…..

1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 201356.0

58.0

60.0

62.0

64.0

66.0

68.0

Recession

Peak = 67.2%January 2001

Peak = 63%Current

Beginning of Women’s Liberation Movement (1967)

59.7%

1948 1958 1968 1978 1988 1998 200830.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

1948 1958 1968 1978 1988 1998 200866.0

71.0

76.0

81.0

86.0

91.0Labor Participation Rate - Women Labor Participation Rate - Men

The Women’s Liberation movement isn’t 100% of this shift, but it’s a big part!

1948 1958 1968 1978 1988 1998 200860.0

65.0

70.0

75.0

80.0

85.0

1948 1958 1968 1978 1988 1998 200825.0

27.0

29.0

31.0

33.0

35.0

37.0

39.0

41.0

43.0

45.0Labor Participation Rate: 25 - 54 Labor Participation Rate: 55+

Some people claim that the drop is participation is baby boomers taking early retirement…not the case!!

A decline is participation isn’t the only thing “new” about our current situation…

*From the latest household survey, BLS

Category May 2015

Unemployed (5.5%) 8.5M 100%

Less than 5 weeks 2.4M 28%

Between 5 and 14 weeks 2.5M 29%


Over 26 weeks 2.3M 28%

Category Oct 2000

Unemployed (5.3%) 6.6M 100%

Less than 5 weeks 3M 45%



Over 26 weeks 0.7M 6%

< 5 weeks 5-14 weeks 15-26 weeks >26 weeks0

5

10

15

20

25

30

35

< 5 weeks 5-14 weeks 15-26 weeks >26 weeks0

5

10

15

20

25

30

35

40

45

50

*From the Nov. 2000 household survey, BLS

Category May 2015

Unemployed (5.5%) 8.5M

6.5 weeks 2.4M

13 weeks 2.5M

26 Weeks 1.3M

52 weeks 2.3M

Let’s Simplify a little…

AUGFEB MAR APR MAY JUNE JULYJAN SEPT OCT NOV DEC

So, our unemployed looks roughly like this for 2015…

2.3M

1.3M 1.3M

2.5M 2.5M 2.5M 2.5M

2.4M 2.4M 2.4M 2.4M 2.4M 2.4M 2.4M 2.4M

Total = 8.5

Category Total for

2015

% for 2015

Unemployed 34.1M 100%

6.5 weeks 19.2M 56%

13 weeks 10M 29%

26 Weeks 2.6M 8%

52 weeks 2.3M 7%

Duration of Unemployment

.56 6.5 .29 13 .08 26 .07 52 13 D weeks

Length of unemployment spell

% of total unemployed in a year

1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 20130.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Average = 15 weeks

Current = 30 weeks

It’s currently taking people twice as long as it used to find a job…

Duration of unemployment

Wages in the US…*

*In 2014, Based on a 40 hour work week, 50 weeks per year

Average hourly compensation

$25/hr.

Montgomery Moran

$7.25/hr.Minimum wage for tipped employees

$13,489/hr.

Steven Ells

$13,471/hr.

Howard Schultz

$10,285/hr.

Minimum wage (Federal)

Average CEO Pay**

**According to data compiled by the AFL-CIO, the average CEO pay at 327 of the nation's biggest companies$7,000/hr.

$2.13/hr.

Median Weekly Real Earnings (2015 Dollars)

1979 1984 1989 1994 1999 2004 2009 2014720

740

760

780

800

820

840

Jan. 1979$787/wk. (~$19.67/hr.*)

Current$800/wk. (~$20/hr.*)

*Based on a 40 hour week

Jan. 2000$784/wk. (~$19.60/hr.*)

1979 1984 1989 1994 1999 2004 2009 2014550

600

650

700

750

800

850

900

950

1000

60

65

70

75

80

85

Median Weekly Real Earnings (2015 Dollars)

Men$885/wk. (~$22/hr.)

Women$724/wk. (~$18/hr.*)

Women’s % of Men

*Based on a 40 hour week

1947 1957 1967 1977 1987 1997 20070

50

100

150

200

250

300

350

400

450

Real GDP Per Hour Real Compensation Per Hour

From the late 1970’s on, we have developed a “wage gap”

Index: 1947 = 100

Since the late 1970’s we have seen the emergence of a “wage gap”. That is, we see a difference between productivity and wages

1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 201430.0

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

40.0

Average Weekly Hours in the US

Current33.7hrs./wk.

196438.2hrs./wk.

12.5%

1984 1989 1994 1999 2004 200946000

48000

50000

52000

54000

56000

58000

$57,000

Real Median Household Income in the US (2013 Dollars)

Current (2013)$52,000

January 1999 $57,000

January 1989 $53,000

10% Decline

GDP

Time

Trend (Average growth)

The business cycle is a repeated pattern of recessions followed by recoveries

Recession (Below Trend Growth)

Recovery (Above Trend Growth)

Peak

Trough

Peak

Recall, that we are interested in understanding the business cycle…

After removing the long term trend, we end up with a series that looks like this (% deviation from trend)

% Deviation From Trend

Time

0

Trough

Peak Peak

Recession

GDP

Recovery

Peak

Trough

Indu

stria

l Pro

ducti

on (%

Dev

iatio

n fr

om T

rend

)

Correlation = .77

1/1/2007 1/1/2009 1/1/2011 1/1/2013

-12

-10

-8

-6

-4

-2

0

2

4

6

8

-4

-3

-2

-1

0

1

2

3

Employment Industrial Production

Empl

oym

ent

(% D

evia

tion

from

Tre

nd)

Total Employment is highly pro-cyclical…

2007-01-01 2009-01-01 2011-01-01 2013-01-01

-4

-3

-2

-1

0

1

2

3

Real Wages Real GDP

Trough

Peak

Dev

iatio

n fr

om T

rend

Correlation = .12

Real wages are pro-cyclical….barely!

At some point in time, you have a fixed number of trees (Capital) and workers

Those workers/capital combine with productivity to produce apples (output)

OR

Those apples are allocated either towards consumption or investment (planting them to grow new trees)

, ,GDP F A K LGDP C I

L

w

p SL

DL

*L

*w

p

For a given capital stock and productivity level, labor markets determine total employment

Recall the apple orchard story….

Labor Markets

L

Total employment (total hours worked)

w

p

Real wages

SLHouseholds choose how much to work

Businesses choose how many hours to hire

DL*L

Equilibrium employment

*w

p

Equilibrium real wage

Labor Markets

L

w

p SL

DL*L

*w

p

Recall that Output = Income

Labor Income + Capital Income

*, ,GDP F A K L

Predetermined

Employment will determine total production (GDP)

=

*

**w

Lp

= Labor Income

Labor Markets

L

w

p SL

DL*L

*w

p

If real wages are too high, we have excess supply of labor…this should put downward pressure on wages

If real wages are too low, we have excess demand for labor…this should put upward pressure on wages

Labor Demand

L

w

p

DL

We assume that labor markets are populated by perfectly competitive firms

Why is this important?

These firms are making hiring decisions to maximize profits.

Y kProfit p Y wL p r K

),,( LKAFY

Capital costs (fixed)

Nominal Wage rate (fixed)

Price of Output (fixed)

, ,Y F A K L

Y

L

These firms use a production process that exhibits diminishing marginal productivity – that is as labor rises, its contribution to production of output shrinks

1L 2L 3L

So, absent productivity growth, increasing labor will lower the marginal product of labor

YMPL

L

1MPL

2MPL

3MPL

L

Y

LY

L Y

, ,Y F A K L

Y

L1L 2L 3L

1 4MPL

2 2MPL

3 .5MPL

1L

1L

2Y 1L .5Y

MPL

These firms use a production process that exhibits diminishing marginal productivity – that is as labor rises, its contribution to production of output shrinks

L

4Y

1L 2L 3L

MPL

4

2

.5

These firms are making hiring decisions to maximize profits.

Y

Profit Yp w

L L

Y kProfit p Y wL p r K

Consider what happens to profits if we change labor a little bit…

MPL

0Profit

L

Yp MPL w

y

wMPL

p

Yp MPL VMPL

Value marginal product of labor

Businesses equate the nominal value of an hour of labor with the nominal wage

Businesses equate the real value of an hour of labor with the real wage

OR

L

MPL

MPL

y

w

p

*LL

Profit

*L

y

wMPL

p

y

wMPL

p

y

wMPL

p

Profits are Decreasing

Profits are increasing

Profits are constant (maximized)

1L 1L2L 2L

Profits are maximized when benefits and costs are equated at the margin!

L

MPL

MPL

L

w

p

DL

1

w

p

2

w

p

1

w

p

2

w

p

1L 2L1L 2L

As wages fall, the marginal cost of labor for businesses drops. This allows them to profitably expand their workforces – even in the light of diminishing marginal returns to labor.

So, these perfectly competitive businesses observe a real wage and make a profit maximizing decision of how much labor to hire. Those decisions are recorded in labor demand.

, ,Y F A K L

Y

L1L 2L 3L

1L

1L

3Y

1L 1Y

MPL

Suppose the economy experiences an increase in productivity….

L

6Y

1L 2L 3L

MPL

4

2

.5

1

3

6

This increase in productivity not only raises total output for every hour of labor worked, but increases the marginal product of every hour worked

L

MPL

MPL

L

w

p

DL

1

w

p

1

w

p

1L1L

As events occur that influence the value of labor at the margin these businesses re-evaluate their hiring decisions and adjust their workforce accordingly.

This increase in labor productivity increases labor demanded.

Labor Supply

L

w

pSL

Just as businesses make decisions to maximize profits, we make decisions to maximize our utility

Make ourselves as happy as possible

( , )U U C Time L

We only have a couple requirements for utility functions• Utility is increasing in consumption (i.e. we like to buy things!)• Utility is decreasing in labor (we don’t like to work)• Utility exhibits diminishing marginal utility (the more we have of

anything, the less it is worth to us at the margin)

Leisure timeReal Consumption

Total Utility (Happiness)

Let’s suppose the following…you have a job opportunity that pays $12 an hour. You can work as much or as little as you want. Further, assume that the only good to buy is pizza and a pizza costs $10. Finally, assume that you have scholarship that pays you $20 per week (you don’t have to work for the stipend). How many hours would you choose to work?

Hours available: 24 hrs./day- 8 hrs./day (sleep) 16 hrs./day*7 days/wk. = 112 hrs.

Nominal Wage = $12/hr.Price (Pizza) = $10Real Wage = 1.2 Pizza/Hr.

Non-Labor Income = $20/wk.Real Non-Labor Income = 2 Pizza/wk.

112Leisure L

( )Pizza C

112

No Work• Labor Income = $0• Stipend = $20• Total Income = $20• Pizzas Bought = 2

2

0

Work 30 Hrs.• Labor Income = $360• Stipend = $20• Total Income = $380• Pizzas Bought = 38

136.4

Work 112 Hrs.• Labor Income = $1,344• Stipend = $20• Total Income = $1,364• Pizzas Bought = 136.4

82

38

136.4 381.2

82 0Slope

38 21.2

112 82Slope

(Real Wage)

(Real Wage)

What you choose to do depends on your preferences!

( , )U U C Time L Leisure timeReal

Consumption


1 hour of leisure. What's that leisure worth to you?

If you work 1 additional hour, what is it cost you?

If you work 1 additional hour, what do you gain?

Value of an hour of leisure

LeisureMU

1.2 pizzas (the real wage). How much are those pizzas worth to you?

ConsumptionMUy

w

p

Number of pizzas you get per hour of work (real wage)

Value of a pizza

Just like with businesses, when we maximize our utility (happiness), we equate costs and benefits at the margin)

ConsumptionMUy

w

p

LeisureMU

Benefits of working Cost of working

=

Let’s rewrite this…

Leisure

y Consumption

MUwMRS

p MU

Marginal Rate of Substitution

Marginal Rate of substitution measures the value of leisure in terms of consumption

. .

Leisure

Consumption

UtilityMU PizzasHr of Leisure

MRSUtilityMU Hr of LeisurePizza

( , )U U C Time L Leisure timeReal

Consumption


We only have a couple requirements for utility functions• Utility is increasing in consumption (i.e. we like to buy things!)• Utility is decreasing in labor (we don’t like to work)• Utility exhibits diminishing marginal utility (the more we have of

anything, the less it is worth to us at the margin)

L

MRSMRS

1MRS

1L 2L

Leisure

Consumption

MUMRS

MU

2MRS • High marginal utility of leisure• Low Marginal Utility of Consumption• High MRS

As you work more, consumption increases and the marginal utility of that consumption falls

As you work more, leisure falls and the marginal utility of that leisure increases

• Low marginal utility of leisure• High Marginal Utility of Consumption• Low MRS

L

MRSMRS

1.2w

p

* 40L

112Leisure L

( )Pizza C

112

2

0

136.4

50

136.4 21.2

112 0Slope

(Real Wage)

72

y

wMRS

p

y

wMRS

p

Work 40 Hrs.• Labor Income = $480• Stipend = $20• Total Income = $500• Pizzas Bought = 50

Utility is decreasingUtility is increasing

y

wMRS

p

y

wMRS

p

Of all the affordable choices, the one that equates costs and benefits at the margin is the best choice!

112Leisure L

( )Pizza C

112

2

0

136.4

50

72Work 50 Hrs. (nominal wage = $15)• Labor Income = $750• Stipend = $20• Total Income = $770• Pizzas Bought = 77

Suppose that you get a raise…your nominal wage increases to $15 (real wage is now 1.5)

170

L

y

w

p

SL

1.2

40

1.5

62 50

77

Possibility #1: Labor Supply Increases (Substitution Effect)

The substitution effect generates a labor supply curve that’s upward sloping (normal)

112Leisure L

( )Pizza C

112

2

0

136.4

50

72

Work 35 Hrs. (nominal wage = $15)• Labor Income = $525• Stipend = $20• Total Income = $545• Pizzas Bought = 54.5

Suppose that you get a raise…you nominal wage increases to $15 (real wage is now 1.5)

170

L

y

w

p

SL

1.2

40

1.5

77 35

77

Possibility #2: Labor Supply decreases (Income Effect)

The income effect generates a labor supply curve that’s downward sloping (weird)

54.5

L

y

w

p

SL

1.2

40

1.5

35L

y

w

p

SL

1.2

40

1.5

50

So, which is it? Possibility #2: Labor Supply decreases (Income Effect)

We usually assume the income effect dominates!

Possibility #1: Labor Supply Increases (Substitution Effect)

OR

112Leisure L

( )Pizza C

112

2

0

136.4

50

72

154.4

82

56

Suppose that your stipend increases to $200/wk. (Wage rate is still $12)

20

L

y

w

p

SL

1.2

40

1.5

30

This is a pure income effect (the wage didn’t change, so there is no substitution effect)

Labor supplied declines (labor supply shifts left)

Work 30Hrs. (nominal wage = $12)• Labor Income = $360• Stipend = $200• Total Income = $560• Pizzas Bought = 56

Labor Markets – Equilibrium

L

w

pSL

Households choose how much to work

Businesses choose how many hours to hire

DL*L

*w

p

Real Wage

Total Hours

Now, we just need to put the pieces together and solve for an equilibrium wage

Labor Markets – Long Run dynamics

L

w

p SL

DL*L

*w

p

Long term productivity growth raises the value of labor at the margin – increasing labor demand

As our incomes rise, the value of our leisure time increases – labor supply drops

Over the long term, real wages and employment rise

Labor Markets – Business cycle dynamics

L

w

p SL

DL*L

*w

p

During economic expansions, labor productivity is above trend…the pushes labor demand up – employment and real wages rise above trend

During recessions, labor productivity is below trend…this pushes labor demand down – employment and real wages fall below trend An increase (decrease) in employment raises

(decreases) production.

*, ,GDP F A K L

% Deviation From Trend

Time

0Trough

Peak Peak

Recession

GDP

Recovery

During recessions, productivity declines. Labor demand falls – employment and real wages fall.

w

p

L

sL

DL

w

p

L

sL

DL

During recoveries, productivity increases. Labor demand rises – employment and real wages increase.

Real Wage Employment Productivity

GDP + + +

Predicted Correlations

Real Wages

Employment

Productivity

Correlations With GDP

The only problem we have is explaining the low correlation between real wages and GDP

Some Suggestions• Are we valuing labor contracts correctly?• Have we calculated real wages correctly?• Do wages actually adjust (most labor contracts are

fixed for extended periods)• Does minimum wage affect this analysis?• Is our story correct?

L

w

p SL

Our story for labor supply says that higher wages increase hours worked

In Theory

Empirically

L

SL

*L

w

p

L

SL

*L

w

p

At the individual level, labor supply is very inelastic

At the macro level, there is labor supply is very elastic

Real Wage Employment Productivity

Actual + (.12)

+(.77)

+ (.67)

Predicted + + +

Example: Oil Price Shocks in the 1970’s

Dol

lars

per

Bar

rel

1973 Arab Oil Embargo

1979 Iranian Revolution

We can think about high oil prices as a negative shock to productivity…remember, we measure GDP as value added and (given that the US imports a lot of oil), high energy prices will lower value added

% D

evia

tion

Fro

m T

rend

Real Compensation (1972 – 1982)



w

p

L

sL

DL

w

p

L

sL

DL

The high oil prices lowers the value of labor at the margin…labor demand falls and real wages drop

% D

evia

tion

Fro

m T

rend

Employment (1972 – 1982)



w

p

L

sL

DL

w

p

L

sL

DL

The drop in labor demand also lowers the new equilibrium level of employment

% D

evia

tion

Fro

m T

rend

GDP (1972 – 1982)



w

p

L

sL

DL

w

p

L

sL

DL

Lower employment will lower total production (GDP)

*, ,GDP F A K L

President Obama has proposed the following:

• Raise the minimum wage from its current level of $7.25/hr. to $10.10/hr. by 2016

• Automatic cost of living adjustments thereafter

Application: The Minimum Wage

What do you think?

$7.25 (2009)

Minimum wages around the world

Adjusting for purchasing power changes the story a little….

Minimum wage laws vary by state….

In 2011, 73.9 million American workers age 16 and over were paid at hourly rates, representing 59.1 percent of all wage and salary workers.

• 16 million hourly workers earn less than the proposed $10.10 per hour• 1.7 million earned exactly the prevailing Federal minimum wage of $7.25 per hour. • About 2.2 million had wages below the minimum ($2.13/hr. is the minimum wage for tipped employees).

Source: Department of Labor

Most minimum wage workers are part time

Source: Department of Labor

0 to 4 hours

5 to 9 hours

10 to 14 hours

15 to 19 hours

20 to 24 hours

25 to 29 hours

30 to 34 hours

35 to 39 hours

40 hours 41 + hours

hours vary

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12 companies with most minimum-wage workers

Darden Restaurants

DineEquity

Yum Brands

Highest wage retail companies

$13.38/hr

$11.27/hr

$11/hr

$10.20/hr

$9.67/hr

$9.67/hr

$9.48/hr $9.38/hr

$9.32/hr$9.24/hr

Costco's CEO and president, Craig Jelinek, has publicly endorsed raising the federal minimum wage to $10.10 an hour, and he takes that to heart. The company's starting pay is $11.50 per hour, and the average employee wage is $21 per hour, not including overtime.

Microeconomic Argument for minimum wage increase: minimum wage workers are underpaid…but really, we are all underpaid in a competitive market!

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SL Labor supply ranks us by the value of our free time

Labor demand ranks us by our productivity

The equilibrium wage reflects the productivity/free time of the marginal worker

For the average worker, they are being paid less than they are worth, but more than their time is worth.

Macroeconomic argument for minimum wage increase: Increasing the minimum wage would put more money into the economy, but does it?

• An increase to $10.10 would amount to a $2.85 per hour raise for those currently on minimum wage

• For a 40 hour week, that would amount to $5700 per year• If we assume that all 16 million people affected got the full $5700, that

would be an increase in income of $91.2B• $91.2B represents around .5% of the US economy

However, can this really be an increase in income?

Unless an increase in the minimum wage makes us more productive,

NO!

Microeconomic argument for increasing the minimum wage: We are creating a better distribution of income, but are we?

Case #1: Rise in minimum wage results in increased unemployment

So we have a transfer from one lower income group to another lower income group

Case #2: Rise in minimum wage creates no job loss and business can’t pass the higher costs onto consumers

Now we have a transfer from business owners to minimum wage workers

Case #3: Rise in minimum wage creates no job loss, but businesses can pass the increased cost onto consumers

Now we have a transfer from consumers to minimum wage workers

FIN 30220: Macroeconomics Labor Markets. The US Labor Market by the numbers…* Total Population 321M “Ineligible to work” 71M Under 16 years old Inmates.

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