human capital, discrimination and trade unions

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...  A trade union may raise wages by

Hourly earnings in the UK 1998

there is discrimination?

Sources of differential pay

 Education and training

 Job experience

 Race and gender

 Trade union membership

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

Age-earnings profiles

profiles show how typical earnings vary with age and educational

qualifications

– education induces

a differential

– which tends to increase with age

Age

No formal qualifications

A-level or equivalent

University degree

or equivalent

 Worker organizations designed to

affect pay and working conditions

 A closed shop

will be members of a trade union.

 A trade union may raise wages by

restricting labour supply

Trade unions

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

N 1

W 1

The differential is larger for any given reduction in industry

employment, the more inelastic

is industry labour demand

 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

 It may reflect:

before young workers reach the labour market

on money spent in training such

workers

 Only if we allow for all these effects

can we show discrimination in the

labour market.

Chapter 14

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

contributes to the production of goods and services

supplies

 Together capital and land make up

the tangible wealth of a country.

– becoming less productive and less valuable

– the production of new capital goods and the

improvement of existing capital goods

– gross investment minus the depreciation of

the existing capital stock

Stocks and flows

 A stock

time

stock can be bought outright

 A flow

provides during a period

capital services

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 payments that will be earned from the services it provides

– discounted back to give the present value.

Real and nominal interest rates

– tells us how many actual pounds will be

earned in interest by lending £1 for one year.

– measures the return on a loan as the increase

in goods that can be purchased rather than as the increase in the nominal value of the loan

fund.

minus the inflation rate.

The equilibrium real interest rate

consumption:

by devoting resources to investment, future

consumption can be increased.

The slope of the frontier has magnitude –(1 + i) where i is the rate of return on investment.

The equilibrium real interest rate

consumers.

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 uses.

Changes in capital intensity

 Over time, the UK economy is

becoming more capital-intensive

leading industries to substitute capital for labour

less elastic than the supply of capital

The functional distribution of income in the UK

The distribution of income between the factors of

production changed little between 1981-89 and 1998.