Chapter 13 Human capital, discrimination and trade unions David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 6th Edition, McGraw-Hill, 2000 Power Point presentation by Peter Smith 13.1 Hourly earnings in the UK 1998 0 2 4 6 8 10 12 14 £.p Manual Nonmanl Men Women  In both manual and non-manual occupations, men are seen to earn more than women.  Does this mean there is discrimination? 13.2 Sources of differential pay  Education and training  Job experience  Race and gender  Trade union membership 13.3 Human capital  The stock of expertise accumulated by a worker  It is valued for its income-earning potential in the future  A form of investment 13.4 Age-earnings profiles  Age-earnings profiles show how typical earnings vary with age and educational qualifications – education induces a differential – which tends to increase with age Age Income No formal qualifications A-level or equivalent University degree or equivalent 13.5  Worker organizations designed to affect pay and working conditions  A closed shop – an agreement that all the firm's workers will be members of a trade union.  A trade union may raise wages by restricting labour supply Trade unions 13.6 Unions in the labour market Employment W 0 With no union, the industry faces a horizontal labour supply curve at the wage W 0 . Given industry demand for labour DD, equilibrium is at E 0 . D D E 0 N 0 By restricting labour supply to N 1 , the union can increase wage to W 1 N 1 W 1 The differential is larger for any given reduction in industry employment, the more inelastic is industry labour demand 13.7 Discrimination?  Women and non-whites on average receive lower incomes than white males  women and non-whites are concentrated in relatively unskilled jobs with fewer opportunities for promotion  This need not reflect blatant sexism or racism by employers 13.8 Discrimination?  It may reflect: – educational or other disadvantages before young workers reach the labour market – a low perceived rate of return for firms on money spent in training such workers  Only if we allow for all these effects can we show discrimination in the labour market. 13.9 [...]... Capital and land: completing the analysis of factor markets David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 6th Edition, McGraw-Hill, 2000 Power Point presentation by Peter Smith Capital and land  Physical capital –  Land –  the stock of produced goods which contributes to the production of goods and services the factor of production which nature supplies Together capital and land make... consumption represents –(1 + r), where r is the real interest rate that balances the productivity of investment and the thriftiness of consumers 14.17 The markets for capital and land The derived demand curve for capital (and for land) services closely parallels the earlier analysis of labour demand  But land is in fixed supply to the economy as a whole  Rental rates tend to become equalized across alternative... country 14.11 Investment  Capital depreciates over time –  Gross investment –  becoming less productive and less valuable the production of new capital goods and the improvement of existing capital goods Net investment – gross investment minus the depreciation of the existing capital stock 14.12 Stocks and flows  A stock – –  the quantity of an asset at a point in time the asset price is the sum for... production possibility frontier between current and future consumption: by devoting resources to investment, future consumption can be increased The slope of the frontier has magnitude –(1 + i) A where i is the rate of return on investment Current consumption 14.16 Future consumption The equilibrium real interest rate Given society's preferences between present and future consumption, the optimal position... asset provides during a period the rental rate is the cost of using capital services 14.13 Interest and present value  The present value of £1 at some future date is the sum that, if lent out today, would accumulate to £1 by that future date – It depends upon how far into the future the sum accumulates –  and on the rate of interest The price of a capital asset should be related to the stream of future... rate of interest The price of a capital asset should be related to the stream of future payments that will be earned from the services it provides – discounted back to give the present value 14.14 Real and nominal interest rates  The nominal interest rate –  The real rate of interest –  tells us how many actual pounds will be earned in interest by lending £1 for one year measures the return on a loan... distribution of income in the UK 100% 80% 60% 40% 20% 0% 1981-89 Employment 1998 Self-employment Profits & rents The distribution of income between the factors of production changed little between 1981-89 and 1998 14.20 . Chapter 13 Human capital, discrimination and trade unions David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 6th Edition, McGraw-Hill,. balances the productivity of investment and the thriftiness of consumers. 14.18 The markets for capital and land  The derived demand curve for capital (and for land) services closely parallels the. and working conditions  A closed shop – an agreement that all the firm's workers will be members of a trade union.  A trade union may raise wages by restricting labour supply Trade unions 13.6 Unions