Wages that people working in particular organizations and institutions receive depend on different factors. When determining payments, employers look at factors such as experience, education, and costs for living in a particular region. These factors indicate that trends in the market, such as government intervention and labor unions may also affect the level of wage received by people in the workplace. However, demand and supply play an essential role in determining the wage level in the United States.
Supply and demand for labor remain the essential factor for determining the level of wages in the market. The labor market requires that the marginal revenue product for work should be equal to the wage rate (Boundless, n.d.). As a result, firms find it easy to hire more workers in situations where marginal revenue for labor is higher than the wage rate. This information indicates that firms consider the value that an engaged employee will have on the organization. However, labor market applies the demand and supply curves for labor to determine labor wages. At the point where demand and supply curves intersect, it is perceived to be an equilibrium wage. Demand and supply for labor indicate that as labor supply rises, labor costs are likely to decline. In the United States, the government introduced minimum wage and labor unions to present the minimum wages firms should offer to workers.
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The shift in demand for labor causes a change of the equilibrium, thus affecting the level of wage in the labor market. Demand for work relies on aspects such as the marginal product of labor and the price for the output produced by an employee (n.d.). Consequently, factors affecting productivity are in a position to cause a shift in demand for labor. For instance, the availability of technology affects the marginal productivity of labor, compelling an employer to change the number of workers in an organization. Moreover, factors such as skills and level of education, physical capital, and the price for substitutes and complement goods are likely to affect demand for labor, thus causing a shift in the demand curve.
Shift in the demand curve for labor causes instability in the level of wage rates in the labor market. For example, if there is an increase in production technology or decline in the prices for the output, the demand curve for labor will shift to the left. In effect, the wage rate will decline because the supply for labor will be higher than demand. Under such circumstances, firms will maximize the level of output by relying on factors such as improved technology at the expense of workers (Hershbein & Macaluso, 2018). If the demand for workers rises, the demand curve for labor will shift upwards, thus increasing the wage rate. As wages rates decline to lower levels, there is a possibility that companies will offer low salaries, thus reducing living standards.
The federal government minimum wage upsets the market equilibrium for labor. The minimum wage legislation requires that companies should not pay hourly wages below the set minimum. In the United States, the minimum wage level is $7.25 (n.d.). However, the rates vary from one state to the other meaning that some nations such as Canada have higher minimum wages. The effects of minimum wage reflect through the increment in wage pay for low wage workers. In the past five years, pay for low wage workers has increased by 13% (Meer & West, 2016). This trend shows that there is a closing gap between low wage earners and high-income wages. This strategy solves the problem of low wages that would arise as a result of an imbalance between supply and demand in the labor market. When the government increases the level of a minimum wage, there will be instability in equilibrium because firms are compelled to pay high fees than they are currently paying. As a result, unemployment rises as companies react by reducing the number of workers to meet the minimum wage requirement.
Labor unions in the United States also play an essential role in determining the level of wages set by employers. A union acts as a representative group for workers, and they negotiate with firms to establish a wage rate that is acceptable to both the workers and employers (Taylor, 2018). As a result, workers represented by unions tend to earn higher wages than their colleagues. Therefore, labor unions affect the wage determining process by setting a minimum wage. The effects of a labor union in the United States reflects through increased differentiation between lowly paid workers and those receiving high payment, thus promoting inequality. For example, wages for men in the 90th percentile rose by 67.31% for men in the year 2018 compared to 7.15 for middle earners (Belser & Rani, 2015). For instance, the US department for labor has set the Fair labor standard Acts as a union for setting the minimum wages that a company should offer to its employees. In situations where firms offer wage levels acceptable to the union group, there is a reduction in cases of a strike that would affect the level of productivity.
Outsourcing jobs create an adverse effect on wage rates and demand for workers in a country. The results of outsourcing jobs occurred in the United States in the year 2004, when companies outsourced more than 15000 jobs (Kalleberg & Von Wachter, 2017). Outsourcing happens in situations where a firm chooses to send some of its production activities to another country, preferably with lower labor wages per hour (Driffield, Pereira, & Temouri, 2017). Consequently, the organization maximizes its profit by relying on low labor cost per unit accompanied by high capital efficiency. Outsourcing some of the activities by a firm reduces demand for employees in the region because most of the work is done outside the United States (Foster-McGregor, Poeschl, & Stehrer, 2016). In effect, the demand for employees by firms will decline while supply exceeds. Consequently, the wage rates will be low because companies will require few employees to accomplish the activities.
In conclusion, the interplay between demand and supply for labor is essential in determining wage rates in the United States. Though factors such as experience, skills, education, and geographical locations determine wage levels, the United States follows demand and supply curves and control variables to set price levels. For instance, minimum wage legislation and labor unions are applied in protecting workers from exploitation by employers as a result of instability in labor market equilibrium. However, outsourcing results in a decline in wage rate and demand for workers in the United States.
References
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(n.d.). Wages. Retrieved from https://www.dol.gov/general/topic/wages
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Boundless. (n.d.). Boundless Economics. Retrieved from https://courses.lumenlearning.com/boundless-economics/chapter/labor-market-equilibrium-and-wage-determinants/
Driffield, N., Pereira, V., & Temouri, Y. (2017). Does offshore outsourcing impact home employment? Evidence from service multinationals. Journal of Business Research.
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