How Nonmarket Forces Affect Wages

Not all wage differences can be explained by the laws of supply and demand. Some of the other fac­tors that influence wages are summarized below.

People Like to Stay Where They Are. Wages dif­fer from one part of the nation to another. In 1991, for example, families living in the Northeast earned about 23 percent more than those living in the South. Had the laws of supply and demand been working in practice as they do in theory, Southern workers would have moved to higher-paying regions.

This would have reduced the Southern labor supply, pushing up the wages of those who remained (and reducing those elsewhere). The process would have continued, the theory tells us, until wages became equal in the regions.

But not everyone who could earn a better living else­where is likely to move. Some will stay where they are because they do not know about the higher paying jobs. Others will stay even knowing they could earn more elsewhere. Perhaps they would rather not pay the moving costs or would prefer to stay close to family and friends. Whatever the reasons, many peo­ple in the labor force prefer to stay where they are.

Job Discrimination. Job discrimination is the practice of favoring one person over another in for reasons that have nothing to do with ability to per­form on the job. To determine the extent of job dis­crimination and its effect on the economy, economists often refer to data of the kind contained in Tables 9-10 through 9-12. In these instances the studies compare the economic status of whites to that of African-Americans and Hispanics.

One important population segment not shown, how­ever, is the Native American. In 1989 Native American median family income was $20,025. Over 30 percent of all Native American families were liv­ing below the poverty level, and 13 percent were unemployed.

As the data for blacks and Hispanics show, these two minority groups-like Native Americans-earn less, hold fewer high-paying jobs, and suffer a higher rate of unemployment, on average, than their white counterparts. While economists and other profes­sionals differ as to why nonwhite Americans are not as affluent as white Americans, most would agree that job discrimination is one of the reasons.

Discrimination benefits no one. When people are denied productive jobs for reasons that have nothing to do with their ability, total output is less than it could have been. Total output affects living stand­ards, because the more that is produced, the more there is for everyone. Job discrimination, which reduces total output, keeps the American economy from reaching its full potential and victimizes us all.

Government Legislation. The federal and many state governments have passed minimum wage laws that establish the lowest legal wage an employer can pay. Other laws affecting issues such as overtime pay, hours of work, and child labor have a direct effect on labor costs. These laws are further exam­ples of nonmarket forces that determine wages.

Labor Unions. Labor unions are associations of workers that seek to promote their members' inter­ests. Wages in unionized industries and shops often are determined by collective bargaining-a

process of negotiation between union and manage­ment representatives to settle wage and other employee-employer issues. Because of this process, collective bargaining is another example of nonmar­ket forces determining wages.

The Effect of Nonmarket Forces on Supply and Demand. Nonmarket forces do have some effect on supply and demand. For example, when workers refuse to move to an area offering higher wages, they help keep the labor supply there low-and wages high. Further, by staying put, the workers help to keep the supply of labor high in their region, which keeps wages low.

Discrimination also affects supply. For example, if women are refused jobs viewed as "men's work," the supply of workers in that field will remain lower, helping to keep wages high. Women will then be forced to enter traditionally female occupations, adding to the sup­ply of those workers and forcing wages down.

Date: 2015-02-28; view: 2179