Reservation Wage

And finance Allah shmoop What are wage rates Oh all

right You probably think about wage rates as it relates

the compensation all the time When you pick a major

you check out the wage rates for the potential jobs

and then run screaming away as fast as you can

from majoring in English and history and philosophy When you

search for a job wage rates are among the first

things you look for right Quite simply a wage rate

represents the amount of money Ah worker gets paid per

unit of time and usually that unit is an hour

or well Maybe it's a yearly wage or a monthly

wage Some like that So you make twenty bucks an

hour Or maybe your deal with your employers is that

you get paid forty grand a year Well your wages

could also come in other varieties like some people make

a monthly wage or a weekly wage or a daily

wage right The point is that you earn a certain

amount for a certain amount of work performed in economic

terms The way Drake equates to the price of labor

It's Aki cost for any business So economists look att

the wage rate as Aki input to production Right Because

high wages mean the producers have to raise prices keep

the same profit margin So think about that From the

company's perspective it's a direct relation and productivity or how

productive they are in producing profits for shareholders You look

at it from the other side the cheaper the cost

to produce something the higher the productivity of that company

or at least the capital deployed in it Also the

wage rate impacts the amount that consumers have to spend

So the wage rate plays into consumer spending in the

economy as well and kind of tickles inflation there every

now and then right So they have tons of wages

and they're willing to spend that extra dollar on conveniences

like home delivered whoopee cushions Well yeah whoopee cushion delivery

Alright well like the price for anything else The price

for labor gets determined by market forces generally supply and

demand So the wage rate for any profession and set

by the supply of people willing and able to do

that job and by the need for that job to

be done all right in the subtext there is if

a job isn't really needed And like St Blowers and

it turns out the minimum wage is twenty eight dollars

an hour Well taxpayers probably happily live with leaves all

over their street rather than pay a fortune for people

to blow him off And I'll just wait for the

next windstorm right You don't really need that job but

no fireman you know you need them and a surgeon

in the hospital Yeah you need them Well the amount

of people are number of people who can do the

job represent the supply supply of Labour The need for

the job represent the demand for it That's why people

who design advanced algorithms for offshore tax optimized emerging market

bond trading make so much money It's a really hard

boring job You need to go to school for a

really long time probably speak a few languages and well

frankly not many people can get through all the rigorous

training to do that job Well extremely low supply and

demand is massive Right sky's the limit Well Meanwhile the

pay rate for side of the road windshield squeegee professionals

is very low Pretty much anyone with arms Khun do

it and no one is really looking to get it

done Economists also look att wage levels on a broad

scale looking at a national or societal level Think about

the price for labor like the price for it Well

pretty much anything else If there's a lot of labor

available prices will be lower at least notionally low If

labour is scarce prices will be higher Okay let's look

at a few historical examples Europe Just after the black

death people go months without taking a bath And well

if you get out of line you might get burned

as a witch Meanwhile somewhere between a third or half

the entire population just died of a disease that caused

the black bulb to grow throughout your groin Bottom line

thanks to the plague Well there were not many workers

around so wages skyrocketed changes so momentous that it basically

undermines feudalism forever Okay now the opposite example America In

the late eighteen hundreds immigrants are pouring in from Europe

Meanwhile agricultural efficiencies air making farm workers way less necessary

like machines do the work of ten workers So people

are moving from countries side There he is like that

into city side areas Well there's lots of labour available

and as a result wage rates are very low so

low that people can barely live on them They live

in these crowded tenement things or company towns Ah whole

political movement gets created Teo Try to make life better

for those workers toiling away Lawmakers passed the minimum wage

the eight hour work day child rights protection thing so

kids don't have to work all day and not go

to school And other protections happened to okay so let's

look at the demand side of the equation Fast forward

about a hundred years or sell America in the second

decade of the twenty first century Automation computers and robots

have taken over a lot of professions will Meanwhile cheap

shipping costs and improve communications make it possible to outsource

unskilled labor toe overseas locations like China There's not much

demand for certain kinds of workers in the U S

Till wages don't increase Even though consumption goes up We

don't need a CZ many American workers to produce more

stuff It's also important Keep in mind that the way

compensation takes place has changed over time In the robber

baron days of old Well Worker got his twenty five

cents for a fourteen hour day and then had to

fend for himself for pretty much everything else like socking

away money for retirement health care benefits and other things

like that Yeah well nowadays most companies offer a wide

range of benefits like cash salary But then it cost

the company more money to pay for health insurance and

awesome more money toe add for a one K contributions

and they give other perks and other add ons These

don't figure in tow wage rates but they do figure

into company labor costs to remember the next time some

government worker quotes you that they only make forty eight

grand a year asked them how much they get in

pension and health care and all that and it's likely

something like another fifteen or twenty grand a year so

they don't really make forty eight grand a year They

make more like sixty eight or seventy grand a year

and you can feel less sorry for Well the wage

rate can also be influenced by regulatory factors The most

obvious of these is the minimum wage Remember those slums

from one hundred years ago Well in order to avoid

those situations governments will often set a minimum wage A

business can't offer a wage legally below this level So

as of two thousand eighteen federal minimum wage was seven

and a quarter an hour But many areas have much

higher threshold For example Washington D C Has a minimum

wage of twelve fifty an hour while Washington State had

a floor on its hourly wage in eleven fifty Well

the impact of minimum wages aren't always predictable They raise

some people's overall wages above a living level But they

also encourage businesses Teo turn toward automation or just shrink

the workforce like think about a restaurant is barely breaking

even and now suddenly the minimum wage as fifteen percent

of labor costs And so instead of having ten workers

maybe they can get away with nine or eight And

they just put the ipads up at every table so

people can just order their dinner through clicking on their

iPad And they can fire a worker well Meanwhile changes

in wage rates impact other economic indicators as well Specifically

higher wages can feed into inflation as workers get paid

more cos look to make up the additional expense They

raise prices for customers which feeds the overall increase in

inflation And as a result an overall increase in wage

rates don't always equate to a one to one benefit

for workers if the higher wages lead to increased inflation

While the buying power of the increased income might not

be all it's cracked up to be another factor When

considering a wage while bonuses versus salary that's another thing

It's another structure Many jobs come with a base salary

which might be nominally pretty low but they come with

commissions or bonuses based on performance And those Khun B

Way more meaningful than the salary Well if you're looking

to become a gold two salesmen you might not get

a big guaranteed salary But wow the commissions can be

huge So as you think about your career in the

type of wage rates or wage structures you're looking for

remember it's not the money It's all about what that 00:08:22.203 --> [endTime] money can buy