Question

Requirements for the assignment

1. This assignment should be completed in essay format.
2. It should include an introductory paragraph with a thesis statement, a body, and a concluding paragraph.
3. It should be at least 1,000 words in length.

Labor

How are wages determined in the U.S.? What are the most significant trends in wages over the past five years? Your answer should address the following:

1. Demand for labor
2. Minimum Wage legislation
3. Role of Unions
4. Outsourcing of jobs

Key points to be addressed in the paper:

• Determinants of the demand for labor at the firm and market levels
• What causes the demand curve to shift
• Consequences for the wage rate
• The effect of minimum wage legislation on market equilibrium
• Effect on demand and wage rate of outsourcing jobs
• Role of unions in wage determination – direct and indirect

Answer 1

There is no one way that wages are determined in the United States. In general, wages are determined by supply and demand, but they can be influenced by a wide variety of factors, including the cost of living in a particular area, the presence of a union and the current minimum wage. Pay rates also vary by gender, race, education level and skill level of the workforce.

How Are Wages Determined?

Before we can discuss how wages are determined in labor markets, it’s important to recognize that there are multiple answers. Overall, U.S. wages are driven by the basic law of supply and demand. However, individual employers can set wages based on how much money a particular position will bring in. Added to that is the fact that candidates often negotiate a salary based on their own unique qualifications.

Another factor complicating any wage discussion is the presence of unions in some sectors. Although the power of unions in the U.S. has decreased in recent years, unions still exist in some areas, and that has an effect on wages. Also, the federal minimum wage can create something called market equilibrium, which helps stabilize pay.

The Supply and Demand Effect

In general, wages are determined by supply and demand, so if you’re in a city with more available jobs than workers, pay is likely to increase as employers in the area compete for the same small talent pool. Conversely, in an area with an overabundance of workers, pay will go down as fewer positions become available. Supply and demand also directly correlate with the type of work someone does. In recent years, the talent shortage has shifted to areas like home health care and hospitality as more people get college degrees in other areas. This means employers have to pay more to fill those positions, naturally driving salaries up

Role of Unions

In situations where workers are protected by unions, wages can be higher due to something called collective bargaining. When someone is acting on behalf of a larger group, an employer is pressured to listen in order to avoid a situation like a strike. Studies have shown that workers represented by unions tend to earn more and have better benefits, on average, than similarly skilled workers who aren’t represented by unions.

Often when experts discuss how wages are determined in labor markets, there are debates as to whether unions hurt or help workers. Higher-skilled workers are more likely to be represented by a union, which can create a wage gap in some areas. If a company becomes unionized, a wage gap can also be created by employees who choose not to join the union, which could make some workers feel pressured to join in order to enjoy the same pay as coworkers.

Minimum Wage Legislation

Any time economists discuss how wages are determined in labor markets, minimum wage enters the conversation. With minimum wage, the government mandates that no employer can pay less than a set hourly figure. As of publication, the federal minimum wage is $7.25, but 29 states and D.C. have their own minimum wages that exceed that amount.

The term, market equilibrium, refers to the point at which the wages being paid are equal to the going rate that employers want to pay and that workers are willing to accept. When the government ups the minimum wage, it upsets that equilibrium because the minimum rate employers have to pay exceeds what they’re currently paying. This often leads to a reduction in hiring, in effect creating at least a temporary increase in unemployment.

Outsourcing of Jobs

Job outsourcing helps U.S. companies be more competitive in the global marketplace. It allows them to sell to foreign markets with overseas branches. They keep labor costs low by hiring in emerging markets with lower standards of living. That lowers prices on the goods they ship back to the United States.

The main negative effect of outsourcing is it increases U.S. unemployment. The 14.3 million outsourced jobs are more than double the 5.9 million unemployed Americans. If all those jobs returned, it would be enough to also hire the 4.3 million who are working part-time but would prefer full-time positions.