"Eric Sedensky, facility and operations manager at American Leakless Co., got a more than $4,000 raise at the end of last year—the same as everyone else at the company, which makes gaskets as a supplier for Honda Motor Co. The company, based in Athens, Ala., within a cluster of other auto-sector businesses, has struggled to remain fully staffed.
“We’re in an extremely, fiercely competitive labor market,” Mr. Sedensky said. “Everyone around us was just offering outrageous sums for people to come work for them, and we were not competitive at all in terms of wages” until the recent pay bump.
The competition wasn’t just coming from other automotive businesses: Local restaurants and retailers were also offering competitive wages relative to American Leakless’s starting pay for hourly manufacturing workers. The company is planning to increase its head count in 2023 by about 10 or 20 workers and considered its old pay scale as an impediment to recruitment.
“We had to make a substantive change to the pay structure,” Mr. Sedensky said."
This related to something I used to talk about in my micro class.
For the whole market, the wage is simply determined by the supply and demand curves. The demand for the whole market would be found by adding the demand (or MRP) of each individual firm.
It would seem that the supply for the whole market would also be the sum of the supply curve for each individual in the market. But it is not that simple, since the labor supply for each individual likely looks something like the labor supply curve in the graph below.
In this graph, L stands for the number of hours worked. As
your wage increases, you are willing to work more hours. But to do so, you have
to sacrifice leisure time. The higher wage allows you to buy more goods, but at
a cost of less leisure. But at some point, your wage gets so high, that it
allows you to buy all the goods you want. So now you want more leisure time,
which means you need to work less.
Imagine if your boss offered to double your hourly wage. You might want to put in more hours. So as W increases, so does L. But if your wage was extremely high, say, $1,000 per hour, you might work just a few hours a week, meaning the number of hours worked (L), decreases. So there must be a wage so high that when you reach it, you start to reduce the number of hours that you work.
The typical American worker worked many more hours a week about 100 years ago than today. They may have worked 60 hours or more. Today, we work fewer hours a week (around 40) yet the average income (adjusted for inflation) is much higher. We make enough money so that we can work less and have the goods we want.
So why can we draw the market supply curve upward sloping if it is “backward bending” for individuals? There are two reasons:
1. As W increases, workers from other industries enter the market in question, so L increases. When W increases, we assume it increases in one market only. For example, if the wage paid to janitors increases, convenience store clerks will apply to become janitors.
2. As W increases, nonworkers enter the market in question. Some workers who were not previously working in any market, will start to apply for jobs if the wage rises high enough. Examples might be stay at home spouses and students.
(I think I got this from Bradley R. Schiller's textbook)
In both cases, an increase in W leads to an increase in L. This is required for the supply curve to slope upward for the market. These two forces will outweigh any “backward bending” effect.
So wages are determined by the supply and demand for the job or occupation.
No comments:
Post a Comment