IV
Economics Mr. Kirchberg
Module 7: “The Role of Labor”
Myth: New technology destroys jobs and leads to
higher unemployment
I. New technology & jobs
A. Changes the workplace
B. Changes people’s training and duties
II. Determination of Wages
A. Productivity
1. Level of goods/services a person or entity
can produce in a given time period
2. U.S. is a world leader
(currently $54,401.30 per person annually)
B. Derived Demand
1. Demand for a product or resource based on
that portion’s contribution to the final product
2. Consumer/Customer determines the value
of one’s labor
Ex. LeBron a. Wages depend upon one’s production
James b. Consumer demand = higher wages
3. Choice (for producers/employers)
a. More money to a good worker
or several cheaper workers
b. Technology
i. Can mean more productivity (usually)
ii. Possible better wages
iii. Shifts the labor demand
curve to the right Hourly
(1) Lower production Wage
costs
(2) Higher profits = greater Workers/Day
supply
iv. Possible lower prices for consumers
C. Standard of Living
1. Improved productivity = Better standard of living
2. Technology leads the way
a. Can cause worker displacement
b. Education has become more important as
productivity increased
III. Supply & Demand for Labor
A. Wages are prices (determined by supply & demand)
B. Have supply and demand curves
1. Wage above equilibrium
a. Short lived
b. Many people demanding
such jobs surplus
2. Wage below equilibrium
a. Shortage of workers
b. Pay is too low and will be forced up
3. Wages are determined by competition
a. Wage earners compete
b. Employers compete
A c. Businesses compete over wages
N C. Labor Unions
A 1. Organized Workers
C a. Better Wages
H b. Better working conditions
R c. Better benefits/perquisites
O 2. Types of Unions
N a. Craft Unions
I i. Workers with similar skills
S ii. Different industries
M iii. Different employers
?? iv. Ex.: Welders, steamfitters …
b. Industrial Unions
i. Many different skilled workers
ii. Work in the same industry
iii. Ex.: Autoworkers
3. Unions as monopolizers
a. Often constrains workers to
certain industries
b. Seek & attain protection w/gov’t regulations
c. Use traditional methods to exclude
i. Apprenticeship
ii. Dues
iii. Equipment (training)
iv. Nepotism
d. Intentionally short-supply workers
i. To drive up wages
ii. Bargain for more benefits/perqs.
iii. Shift the labor supply curve to
the left $
bene.
no. of
workers
4. Collective Bargaining (organized negotiations)
a. Done to raise wages & related items
b. Pushes equilibrium into surplus
(Demand for good jobs)
Ex. i. Surplus the unlucky must search
Teachers elsewhere
ii. Lucky few get the jobs
iii. Unions avoid dislocated or
unemployed members (layoffs)
iv. Union’s wages shift the product’s
demand curve to the left
(higher prices for products)
(1) Productivity must rise too
but (2) Insured union jobs cut productivity
(3) Unions contribute to
unemployment (overall)
IV. Investment in Human Capital
A. Incomes rise as people’s productivity rises
B. Income
1. Money received in exchange for work
or use of one’s property
a. Resources to produce income
i. Knowledge
ii. Investments
iii. Property (incl.: rental property &
money in the bank)
b. Opportunity to use one’s resources
i. Discrimination can affect this
ii. Location
iii. Socio-economic background
2. 74-75% of all income is wages
3. Determinants of the productivity of labor
a. Personal characteristics
(Intelligence, motivation, self-discipline,
friendliness & ability to be responsible)
b. People’s level of education/training
C. Capital Goods (buildings, tools, technology & machines)
1. Amt. Per worker (avg.)
(1947 = $26,000 and in 1991 = $54,000)
2. Determined by employers and employees
a. Technology (typewriters to PCs)
b. Technology has increased productivity
3. Human Capital
a. Knowledge & skills
b. More education = more earning power
c. Greater human capital = greater productivity
d. Trend towards higher levels of skill
i. Shortage = higher wages
ii. Surplus = lower wages
(usually lower skills)
iii. Greater demand
for colleges & = higher tuition
tech schools
D. Total Income is finite at any given moment as
discerned by David Ricardo (2001 = $9.78 tril.)
“Iron Law 1. Distribution of income
of Wages” a. Wages (74-75% of income)
b. Factors of Producing Income
i. Resources yield interest
ii. Buying stock and loaning money
iii. Capital goods yield rent
iv. Proprietor’s income (8%)
(yielded by individual proprietors)
2. Lorenz Curve (always bends upwards)
a. Represents the % Line of
curve of income of equality
distribution income Lorenz
b. Income distribution Curve
is unequal % of households
i. Bottom 40% gets only 13.4% of
all income
ii. Top 20% has 46.5% of all income
(a growing sector due to BAD investing?)
c. U.S. is more equal in income
distribution than other nations
d. People tend to move up and down thru.
various levels of income thru. their lives
Module 8:
“The Role of the Consumer”
Myth: It pays to comparison shop
I. Money Managing
A. Comparison Shopping
1. Not always wise
(Opp. cost, time, gas, cash, & frustration)
2. “A deal” can be costly in the end
B. Financial Goal Setting
1. Setting a time, an amount of money
and purpose of expenditure(s)
2. Set long- and short-term goals
3. Household budget (monthly)
a. Gross income = total money received
b. Net income = after taxes & deductions
c. Fixed expenses ( rent or insurance
d. Variable expenses ( clothing, day-to-day
e. Economizing ( getting more out of a
limited income
i. Variable expenses can be cut
ii. Increase income
iii. Change one’s lifestyle
C. Federal Agencies that aid consumers
1. Federal Trade Commission (FTC)
a. Keeps the marketplace open & competitive
b. Goes after false advertising, bad
labeling or bilking
2. U.S. Justice Dept. goes after monopolies
Taxes 3. States’ Attorney General Offices maintain
State state market regulations (Office of Weights
Dept. of & Measures)
Revenue 4. Consumer Product Safety Commission
a. Sets product standards
b. Removes unsafe products & gets refunds
5. Food & Drug Administration
a. Oversees: Food, drugs, cosmetics,
and medical services
b. Includes false advertising & mislabeling
6. Department of Transportation (DOT)
a. Oversees all forms of transport
b. Insures safety, price regulation
and good customer service
II. Consumer Credit
A. “Purchasing on Credit”
1. Benefit now, pay later
2. Interest is paying for borrowed money
B. Types of Credit
1. Charge Account
a. Higher rates (15-20%)
b. Sometimes includes an annual fee
c. Many types require paying the whole
bill at time of statement (1)
d. Revolving accounts only need a minimum
sum paid at time of statement (2)
2. Installment Account (loan in payments)
a. Major purchases (cars, appliances…)
b. Home mortgage is one type
3. Financial Institutions
a. Banks, savings banks and “savings & loans”
i. Make loans to those with good credit
ii. Cash loans as well
b. Credit Unions
i. Loans to members
ii. Membership thru. business, union, etc.
iii. Least expensive ( nonprofit organization
c. Finance Companies
i. Loan money to almost anyone
for almost anything
ii. Very high interest rates (30%!)
4. Credit Bureau
a. Clearinghouse for consumer debt info.
b. Provide the “4 C’s of credit”
i. Character (deadbeat?)
ii. Capacity to repay (income/resources)
iii. Capital (liquid assets)
iv. Collateral (property/chattel – to be seized)
5. Equal Credit Opportunity Act
(prevents discrimination)
6. Fair Credit Reporting Act
a. No misinformation on people’s
credit may be knowingly divulged
b. Consumers may inspect their own files
(one time per year is free) “Credit Rating Exercise”
7. Credit Card Interest
a. High to cover risk
b. Problems: default & theft
c. Consumers and retailers pay for
the convenience
d. Truth in Lending Act
i. Must disclose rates, finance
charges and penalties
(APR) ii. In terms of Annual Percentage Rate
e. A contract is mandatory
f. Shop for the best package to fit you
III. Savings, Investing & Borrowing
A. Types of Accounts
1. Demand deposits = checking/debit
a. Payee (gets checks) demand payments
b. Payer’s account is deducted
c. Banks/Savings Banks often offer interest
d. Negotiable Order of Withdrawal (NOW)
i. Type of demand acct. – pays interest
ii. Usually a minimum balance required
2. Savings Account (passbook)
a. Usually No checks
b. Withdrawal or demand is possible
(“passbook” = little book (Card) to the customer)
3. Money Market
a. Minimum balance required
b. Higher rate of interest paid ( higher than
a NOW (Negotiable Order of Withdrawal)
or passbook account
4. CD or Certificate of Deposit
a. Penalty for early withdrawal
(6, 12, 18, 24, & 36 month)
b. Longer the period ( higher the interest
5. Stocks = shares of ownership
(never a guaranteed (Common v. Preferred)
pay-out) a. Earn money from increased stock value
b. “Blue Chip Stock” = low risk
c. Securities & Exchange Commission (SEC)
i. Oversees stock and bond sales
ii. Allows no false information
iii. No insider information
6. Treasury Bonds (T-Bonds) (Timeline)
a. Two types and 10-30 years
b. Pay only federal income tax on interest
c. Series EE Savings Bonds
Electronic (sometimes called “Patriot Bonds”)
Versions of i. Sold at full face (par) value (paper)
Each Sold ii. Held until mature (electronic)
At full Par (Rates adjusted every 6 mos.)
d. Series I Bonds sold at full value and accrues
interest for up to 30 years
(Interest Rate adjusts to inflation—points above)
e. Discounted bonds
i. Sold at a reduced price
ii. To encourage sales
iii. To gain immediate profit
f. Treasury bills (T-bills)
i. Sold at par or discounted
ii. 1-6 month maturity (may be 1 year)
g. Treasury Notes (T-Notes)
i. Mature 2, 3, 5 or 10 years
ii. $1000 to $10,000 denominations
iii. Earn interest every 6 months
h. Most nations issue bonds
7. Corporate and Municipal Bonds
Junk Bonds: a. Usually safer than stock and rated
Also called “High b. Can be discounted
Yield” or “Speculative c. Municipal: Issued by state and local
Bonds” gov’ts (10-40 yrs.)
Rated BB or lower d. Issued to pay for large project
3-4% higher return (corporate expansion, roads, hospitals,
schools & so on)
e. Tax free earnings on municipal bonds
8. Mutual Fund
a. Investors pool money to buy “diversified units”
b. Handled by professional investment managers
c. Shared profits and losses
9. Individual Retirement Account (IRA)
a. For retirement
b. No taxes paid on income till retirement
401 k c. Roth IRA ( taxed up front & may borrow
403b (gov't employees) money from it before retirement (Pay self back!)
B. Large Expenditures
1. Automobile
a. Is it necessary?
b. Alternatives?
2. New Car Purchase
a. Total Cost = sticker price, taxes, licensing,
insurance, maintenance, gas,
parking, title, …warranties?
b. Depreciation? (Hidden Cost of a Capital Expenditure)
c. Time of year when buying
3. Used Car Purchase
a. Kelley Blue Book – value
b. More costly to maintain than “new”
c. Less availability of warranties
d. Lower insurance rates
e. Lower payments, cost and taxes
f. Consult Consumer Reports or Road & Track
4. Negotiations are expected
a. Dealer’s minimum cost
i. Consumer Reports or
ii. Edmund’s New Car Prices (now used as well)
b. Shop around and take time!
C. Housing
1. Single-Family Unit
a. Best for room and independence
b. Most expensive
2. Apartment
a. Studio to luxury townhouse
b. Written lease – ALWAYS!
i. Rights/Responsibilities of both
renter and landlord (contract)
ii. Specific time (term)
iii. Security deposit (often required)
iv. Utilities, furniture(?), Water(?) &
heat(?) ( Are they included in rent?
3. Condominium
a. Owned outright – mortgage?
b. Monthly fee for maintenance
c. Small house or apartment in appearance
4. Cooperative Apartment
a. Renters share and operate the building
b. Permission needed to rent (sublet),
sell or remodel
5. Renting vs. Owning
a. Renting
i. More mobility
ii. No down payment or mortgage
iii. No property taxes
iv. Often no upkeep
b. Owning
i. Investment ( Home Equity
(1) Home Equity = that which one owns
outright & can borrow against
(2) Home Equity = collateral for loans
ii. Freedom to move?????
iii. Tax benefits
iv. Privacy!!!!!
6. Other considerations
a. Time of commute
b. Home Equity accumulation usually takes time
c. Yard????
d. Amount of responsibility
e. Permanence/ Commitment level???
f. Property taxes
g. Cost of purchasing
i. Closing costs
ii. “Points”
iii. Cost of the mortgage (Interest!)
7. Mortgages (fixed or variable rate)
a. Fixed Annual Percentage Rate (APR is based
Principal = Actual upon the “prime rate” or “discount rate” + % points)
Amount Borrowed i. 10 – 50 yrs.
ii. Payments never change Quiz
b. Variable rate (APR) mortgage
i. Definite rules with a “cap” (maximum
point change allowed), but changes occur
during the life of a mortgage
ii. May offer low introductory rates
iii. Will adjust to prime or discount rate c. Graduated payment
i. Interest rates rise gradually over time
ii. Assumption of a higher future salary
d. Balloon payment may terminate any of the
abovementioned (very large last payment)
i. Allows for a low introductory APR
ii. Save to pay the final payment
iii. May refinance to pay final payment
IV. Insurance (Protection against loss)
A. Spreads out risks/costs
1. Unlucky few benefit from the many
2. Homeowners/Renters insurance covers a lot
B. Auto Insurance
1. Liability is required in most states (WI Law!)
2. Six types of protection
a. Bodily Injury
i. Pays for death or injury if you’re at fault
ii. Pays for others driving your auto
b. Property Damage Liability
i. Covers damage done by your car
(including farm animals)
ii. No-fault insurance (Your own insurance
pays for damages despite who is blamed)
c. Medical Payments
i. To you as owner of the vehicle & your
passengers (despite who is at fault)
ii. May offer protection, if hurt by
another vehicle
d. Uninsured Motorist
i. Pays for other if at fault & w/o insurance
ii. Not needed in states with no fault insurance
e. Collision
i. Fixes your car if responsible
ii. Includes deductible ($50-$500 out-of-pocket)
f. Comprehensive
i. Covers all other sorts of
miscellaneous damages
ii. Includes deductible ($50-$500 usually)
g. Road Emergency Insurance
i. Towing, Auto Rental
ii. Housing (Hotel/Motel)
iii. Bail Insurance
C. What is needed?
1. Bodily injury and property damage coverage
2. Three-part minimum (Ex: 10/20/25)
a. Part One: Maximum paid for 1 person’s
death or medical
b. Part Two: Maximum paid for all medical
needs combined
c. Part Three: Maximum paid for
property damage
3. States have minimum liability coverage
requirements (WI incl.)
4. Good Idea: Extra medical and uninsured
motorist coverage
5. Collision and Comprehensive
coverage – Is the car worth it?
D. Always Comparison Shop!
1. Best’s Insurance Reports
(Gives ratings in a letter format – Ex. A, A+, B)
2. Check with the state insurance department
(Coverage available for the uninsurable – very bad risks)
3. Avoid small claims to keep your premiums
low!!!!!!!
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