7138047-Wages-and-the-Distribution-of-Income

Slide 1: 

Wages and the Distribution of Income

Labour Market Trends: 

Labour Market Trends Sectoral shift from agricultural and manufacturing to service-sector employment

Slide 3: 

Employment in different sectors of the UK economy

Slide 4: 

Employment in different sectors of the UK economy

Slide 5: 

Employment in different sectors of the UK economy

Slide 6: 

Employment in different sectors of the UK economy

Slide 7: 

Employment in different sectors of the UK economy

Labour Market Trends: 

Labour Market Trends Sectoral shift from agricultural and manufacturing to service-sector employment Rise in part-time employment

Slide 9: 

Total employment The growth of part-time employment in the UK

Slide 10: 

Total employment The growth of part-time employment in the UK

Slide 11: 

Total employment Full-time employment The growth of part-time employment in the UK

Slide 12: 

Total employment Full-time employment Part-time employment The growth of part-time employment in the UK

Labour Market Trends: 

Labour Market Trends Sectoral shift from agricultural and manufacturing to service-sector employment Rise in part-time employment Rise in female participation rates

Labour Market Trends: 

Labour Market Trends Sectoral shift from agricultural and manufacturing to service-sector employment Rise in part-time employment Rise in female participation rates Rise in temporary employment

Labour Market Trends: 

Labour Market Trends Sectoral shift from agricultural and manufacturing to service-sector employment Rise in part-time employment Rise in female participation rates Rise in temporary employment Downsizing

Wage Determination in a Perfect Market: 

Wage Determination in a Perfect Market Perfect labour markets everyone is a wage taker freedom of entry perfect knowledge homogeneous labour Market equilibrium

Slide 17: 

S all workers in the market D all firms in the market O Labour hours Hourly wage W m A labour market: whole market

Slide 18: 

D individual employer O Labour hours Hourly wage Q 1 W m S labour A labour market: individual employer

Slide 19: 

O Labour hours Hourly wage Q 2 W m D labour S individual worker A labour market: individual worker

Wage Determination in a Perfect Market: 

The supply of labour curve why upward sloping the position of the supply curve the number of qualified people non-wage benefits desirability of alternative jobs Elasticity of supply of labour the mobility of labour Wage Determination in a Perfect Market

Wage Determination in a Perfect Market: 

The demand for labour: marginal productivity theory the profit-maximising approach the marginal cost of labour ( MC L ) the marginal revenue product of labour ( MRP L ) Wage Determination in a Perfect Market

Slide 22: 

O Q of labour Output MPP L x Marginal physical product of labour curve Diminishing returns set in here

Wage Determination in a Perfect Market: 

The demand for labour: marginal productivity theory the profit-maximising approach the marginal cost of labour ( MC L ) the marginal revenue product of labour ( MRP L ) the profit-maximising level of employment for a firm Wage Determination in a Perfect Market

Slide 24: 

O £ W m MC L = W Q e Q of labour MRP L The profit-maximising level of employment MRP L = MPP L × P good

Wage Determination in a Perfect Market: 

The demand for labour: marginal productivity theory the profit-maximising approach the marginal cost of labour ( MC L ) the marginal revenue product of labour ( MRP L ) the profit-maximising level of employment for a firm derivation of the firm’s demand curve for labour Wage Determination in a Perfect Market

Slide 26: 

O Q of labour £ MRP L W 1 MC L 1 Q 1 MC L 2 W 2 MC L 3 W 3 Q 2 Q 3 a b c Deriving the firm’s demand curve for labour Profits maximised where MRP L = MC L

Slide 27: 

D O Q of labour £ W 1 MC L 1 Q 1 MC L 2 W 2 MC L 3 W 3 Q 2 Q 3 a c Deriving the firm’s demand curve for labour The MRP L curve traces out the demand curve b

Wage Determination in a Perfect Market: 

Wages and profits under perfect competition Wage Determination in a Perfect Market

Slide 29: 

O MC L = W Surplus for firm Wages W Q e Q of labour £ MRP L Wages and profits

Wage Determination in Imperfect Markets: 

Power in labour markets Firms with monopsony power in employing labour MC L > W Wage Determination in Imperfect Markets

Slide 31: 

O Q of labour £ MRP L AC L º W (supply curve) MC L Monopsony

Wage Determination in Imperfect Markets: 

Power in labour markets Firms with monopsony power in employing labour MC L > W effects on wages and employment Wage Determination in Imperfect Markets

Slide 33: 

O Q of labour £ MRP L AC L º W (supply curve) Q 1 MC L Monopsony W 1 Q 2 W 2

Wage Determination in Imperfect Markets: 

Power in labour markets Firms with monopsony power in employing labour MC L > W effects on wages and employment Unions with monopoly power Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

Power in labour markets Firms with monopsony power in employing labour MC L > W effects on wages and employment Unions with monopoly power unions facing competitive employers Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

Power in labour markets Firms with monopsony power in employing labour MC L > W effects on wages and employment Unions with monopoly power unions facing competitive employers effects of wage increases on employment Wage Determination in Imperfect Markets

Slide 37: 

O Q of labour Q 1 S D £ W 1 Monopoly union facing producers under perfect competition

Slide 38: 

O Q of labour Q 1 W 1 S D £ W 2 Q 2 Q 3 Monopoly union facing producers under perfect competition Unemployment

Wage Determination in Imperfect Markets: 

Bilateral monopoly no unique equilibrium relationship between wages and employment Wage Determination in Imperfect Markets

Slide 40: 

O Q of labour £ W 1 Q 1 MRP L MC L 1 No union S 1 (= AC L 1 ) No union Bilateral monopoly Monopsony: no union

Slide 41: 

W 2 x MC L 2 = AC L 2 O Q of labour £ W 1 Q 1 MRP L MC L 1 No union S 1 (= AC L 1 ) No union Bilateral monopoly Bilateral monopoly Q 3

Slide 42: 

W 2 x MC L 2 = AC L 2 O Q of labour £ W 1 Q 1 MRP L MC L 1 Bilateral monopoly Wage can rise to W 2 with no fall in employment

Slide 43: 

W 2 x MC L 3 = AC L 3 O Q of labour £ W 1 Q 1 MRP L MC L 1 Bilateral monopoly Wage can rise from W 1 to W 3 and employment rises to Q 2 W 3 Q 2

Wage Determination in Imperfect Markets: 

Bilateral monopoly no unique equilibrium relationship between wages and employment collective bargaining Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

Bilateral monopoly no unique equilibrium relationship between wages and employment collective bargaining union threats and promises Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

Bilateral monopoly no unique equilibrium relationship between wages and employment collective bargaining union threats and promises employers’ threats and promises Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

Bilateral monopoly no unique equilibrium relationship between wages and employment collective bargaining union threats and promises employers’ threats and promises role of the government Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

The efficiency wage hypothesis higher wage rates may lead to higher productivity less “shirking” reduced labour turnover self-selection morale Wage Determination in Imperfect Markets

Wage Determination in Imperfect Markets: 

Flexible labour markets the flexible firm functional flexibility numerical flexibility types of workers core workers peripheral workers Wage Determination in Imperfect Markets

Slide 50: 

The flexible firm

Slide 51: 

Core group Primary labour market Functional flexibility The flexible firm

Slide 52: 

First peripheral group Secondary labour market Numerical flexibility Core group Primary labour market Functional flexibility The flexible firm

Slide 53: 

First peripheral group Secondary labour market Numerical flexibility Self-employment Core group Primary labour market Functional flexibility The flexible firm

Slide 54: 

First peripheral group Secondary labour market Numerical flexibility Self-employment Core group Primary labour market Functional flexibility Agency temporaries The flexible firm

Slide 55: 

First peripheral group Secondary labour market Numerical flexibility Self-employment Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 56: 

First peripheral group Secondary labour market Numerical flexibility Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 57: 

First peripheral group Secondary labour market Numerical flexibility Second peripheral group Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 58: 

First peripheral group Secondary labour market Numerical flexibility Short- term contracts Second peripheral group Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 59: 

First peripheral group Secondary labour market Numerical flexibility Short- term contracts Public Subsidy Trainees Second peripheral group Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 60: 

First peripheral group Secondary labour market Numerical flexibility Short- term contracts Public Subsidy Trainees Delayed recruitment Second peripheral group Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 61: 

First peripheral group Secondary labour market Numerical flexibility Short- term contracts Public Subsidy Trainees Delayed recruitment Job sharing Second peripheral group Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Slide 62: 

First peripheral group Secondary labour market Numerical flexibility Short- term contracts Public Subsidy Trainees Delayed recruitment Job sharing Part time Second peripheral group Self-employment Increased outsourcing Core group Primary labour market Functional flexibility Agency temporaries Sub- contracting The flexible firm

Wage Determination in Imperfect Markets: 

Flexible labour markets the flexible firm functional flexibility numerical flexibility types of workers core workers peripheral workers implications for the distribution of income Wage Determination in Imperfect Markets

Causes of Inequality: 

Causes of Inequality Inequality in the UK income distribution before and after taxes and benefits

Slide 65: 

Size distribution of UK income by quintile group of households: 2001/2 Bottom 20% Next 20% Middle 20% Next 20% Top 20% 15% 24% 48% 9% 4% Income before taxes and benefits

Slide 66: 

Size distribution of UK income by quintile group of households: 2001/2 Bottom 20% Next 20% Middle 20% Next 20% Top 20% 15% 24% 48% 9% 4% Bottom 20% Next 20% Middle 20% Next 20% Top 20% 11% 16% 22% 45% 6% Income before taxes and benefits Income after taxes and benefits

Causes of Inequality: 

Causes of Inequality Inequality in the UK income distribution before and after taxes and benefits distribution of income by source

Slide 68: 

Sources of UK household income as a percentage of gross household income 1970 2001/2 1% 77% 7% 4% 3% 9% Wages and salaries Income from self employment Investment income Pensions, annuities Social security benefits Other Source: Family Spending (ONS, 2002)

Slide 69: 

Sources of UK household income as a percentage of gross household income 1970 2001/2 67% 9% 4% 7% 12% 1% 1% 77% 7% 4% 3% 9% Wages and salaries Income from self employment Investment income Pensions, annuities Social security benefits Other Source: Family Spending (ONS, 2002)

Causes of Inequality: 

Causes of Inequality Inequality in the UK income distribution before and after taxes and benefits distribution of income by source distribution of wages and salaries by occupation

Slide 71: 

Average gross weekly earnings of UK full-time adult male employees: 2002

Causes of Inequality: 

Causes of Inequality Inequality in the UK income distribution before and after taxes and benefits distribution of income by source distribution of wages and salaries by occupation distribution of wages and salaries by sex

Slide 73: 

Average gross weekly earnings of UK full-time adult female employees: 2002

Slide 74: 

Average gross weekly earnings of UK full-time adult employees: 2002

Slide 75: 

Average gross hourly earnings for full-time adult UK employees (pence per hour): 1970-2002

Slide 76: 

Average gross hourly earnings for full-time adult UK employees (pence per hour): 1970-2002

Slide 77: 

Average gross hourly earnings for full-time adult UK employees (pence per hour): 1970-2002

Slide 78: 

Average gross hourly earnings for full-time UK employees on adult rates (2002)

Slide 79: 

Average gross hourly earnings for full-time UK employees on adult rates (2002)

Slide 80: 

Average gross hourly earnings for full-time UK employees on adult rates (2002)

Causes of Inequality: 

Causes of Inequality The causes of inequality differences in ability differences in attitude differences in qualifications differences in hours worked differences in pleasantness of job differences in power differences in the demand for goods discrimination differences in household composition

Slide 82: 

Percentage shares of income before and after tax by decile group of households: 2001/2 Source: Family spending (ONS,2003) One adult (not retired) One adult, two or more children One man, one woman (not retired) Two adults, four or more children One man, one woman, two children One man, one woman, on state pensions

Slide 83: 

Percentage shares of income before and after tax by decile group of households: 2001/2 Source: Family spending (ONS,2003) One adult (not retired) One adult, two or more children One man, one woman (not retired) Two adults, four or more children One man, one woman, two children One man, one woman, on state pensions

Causes of Inequality: 

Causes of Inequality The causes of inequality (cont.) inequality of wealth degree of government support unemployment

The Redistribution of Income: 

The Redistribution of Income Taxation tax and income proportional progressive regressive problems in using taxes to redistribute incomes income taxes taxes on goods and services

The Redistribution of Income: 

The Redistribution of Income Taxation (cont.) taxation and incentives: effect of raising income taxes income effects reduces disposable income: people work more substitution effects reduces opportunity cost of leisure: people work less

The Redistribution of Income: 

The Redistribution of Income Benefits cash benefits means-tested benefits universal benefits benefits in kind benefits and the redistribution of income

Slide 88: 

Social protection benefits in various European countries: (a) Expenditure per head: EU-15 = 100 Source: Eurostat, 2003 % of EU average

Slide 89: 

Social protection benefits in various European countries: (b) % of GDP Source: Eurostat, 2003 % of GDP

The Redistribution of Income: 

The Redistribution of Income Benefits cash benefits means-tested benefits universal benefits benefits in kind benefits and the redistribution of income the problem of the poverty trap tax credits in the UK

Slide 91: 

UK tax credits, 2003/4