Why do the top footballers get paid Over £50,000 a week, when in all probability they would be willing to play football for £200 a week. The first thing to remember is that it is only a very small % of footballers who get these astronomical wages. The Wages are determined by the two basic factors of supply and demand. The supply of top strikers is very limited. If you want to get the best striker in the world. The supply curve for this commodity (best player) is perfectly inelastic. When you have a supply curve that is perfectly inelastic, the wage will be determined by the demand curve; any increase in demand for that player will result in an increase in price.

Note it is not just the supply curve that affects wages. The supply of the best lacrosse players is similarly inelastic, but you don't get £50,000 for playing lacrosse.

The theory of MRP suggests that demand for labour depends on two things. MR of the last good sold and MPP - the productivity of the worker.
The MR is basically the price people are willing to pay to consume the good. In the case of football this is the price people are willing to pay to watch the game, live or on TV. It is also includes sponsorship and prize money. In the past 2 decades the amount of money in football has increased significantly. Mainly due to factors such as cable TV paying a premium to broadcast live games. For all the money coming into a game, there is a relatively small number of workers (players) who need paying. Manchester United may generate £1 million per game, yet the number of people they have to employ is relatively low. Therefore, there is a high amount of money for players.

The MPP of players cannot be exactly measured. However, if a good player makes the difference between a team finishing 5th and 4th in the premiership, it can be worth several million pounds to the club (qualification to champions league) Even one kick can be worth upto £10 million. This gives footballers a potentially very high productivity. This is why clubs are willing to pay so much on transfer fees and wages. At the other end of the football league, the money in the game is lower and so effectively the MRP of lower division players is lower.

Furthermore the demand for the top players is very competitive. The market for the top players is wide open, British clubs face not only face competition from each other, but also Spanish and Italian clubs. The competitive nature of the bidding means that the clubs often have to bid the maximum that they are willing to pay in order to get the player.

See also

• Essay on MRP and the determination of wages
• Economics of Football
  

Labels: wages

SOWWIE CAN YOU PLEASE QUICKLY RUN OVER THE SUPPLY FACTORS FOR THE MRP AND THEIR RELEVANCE ?



MRP is about the demand for labour, not the supply

MRP = Marginal Revenue Product.

MRP = MPP * MR

MRP depends on the productivity of workers and Price (marginal revenue) of the good produced. Therefore, Labour demand is a derived demand.

Wages are determined by both demand (MRP) and Supply.

• Supply of labour depends on things like
• number of qualified workers
• Time taken for qualifications
• Non monetary benefits e.t.c

Wage determination

Labels: labour markets, wages

Evaluate how EU labour market policies might affect wage differentials between men
and women in the UK?

not an easy question. Need to first be aware of EU labour market policies. These are from the EU social chapter

EU Labour Market policies include:

• Maximum working week
• Minimum wage
• Extension of Full time rights to part time and temporary workers
• Works councils,
• parental leave,
• regulation on sexual harassment,
• minimum wage,
• minimum four weeks' paid holiday,
• 40-week maternity leave

• Extension of full time rights to part time workers may benefit women more than men. This is because women are more likely to work in part time / temporary jobs.
• The same is true for minimum wage legislation. It is more likely to benefit female workers, because they are more likely to do part time / service sector jobs, which benefit from a minimum wage.
• However, on the other hand it could be argued the increased legislation may make firms less willing to take on female workers. If women are likely to receive generous maternity leave, the firm may be inclined to pay less so that it can afford to pay maternity leave (more likely they will just not get taken on)
• Maximum working week is more likely to apply to men. Women are more likely to do part time / temporary jobs. This will reduce the total take home pay for men (as opposed to hourly wage) This will bring total earnings of men closer to women.
• The legislation has its limitations. Differences in wages are due to many factors such as; women choosing lower paid jobs, taking career breaks and therefore not getting promoted. Therefore these legislation may not tackle the fundamental reasons for imbalances.

See also: Why Women Get paid less than men

The EU and the Social Chapter

Labels: labour markets, wages

hello when looking at reasons why there is a difference in wages in regions what reasons are there? thank you

Let us assume wages in London are higher than in Newcastle.

The first thing to do is to consider what determines wage differentials in general.
The basic theory behind wage determination is:

1. Marginal Revenue Product of Labour MRP = MPP *MR
2. MPP = productivity of workers - Are workers in the London more productive than Newcastle? - Unlikely to be the case. Work environments are similar
3. MR - The price of goods is higher in London than Newcastle. This is related to the cost of living. Because goods are more expensive, the workers add a greater MRP than in Newcastle. For example, to get a hair cut in london is more expensive. THerefore, you would expect hairdressers to be paid higher wages. This point is quite significant, especially for service sector type jobs. However, it wouldn't explain differences in Mcdonalds workers where the price of a Big Mac is the same
4. Supply of Labour. Labour shortages in London are likely to push up wages. If there is a surplus of labour in Newcastle this puts downwards pressure on wages. Note: there is a shortgage of nurses in London, but free market forces don't operate for nurses.
5. Government pay London Bonus. Because of London's costs of living, the government pay higher wages

Other factors that may be of importance

• Monopsony power of workers in north?
• Trades Unions more powerful in London? - not the case
• High paying firms set up in London. E.g. More solicitors and bankers in London. Therefore, it is differences in types of jobs, that is quite important.

If you understand the basic principles behind wage determination you can use the theory for related questions:

• Why are women paid less than Men?
• Wage determination in competitive markets
  

Labels: labour markets, wages

Marginal Revenue Product Theory: This states that demand for labour depends upon 2 things; Productivity of labour, and the demand for the Good they produce (which determines price)

MRP = MPP * MR

MPP = marginal physical product (output produced by an extra worker)
MR = Marginal Revenue (this is the revenue from selling an extra unit of output - determined by price of a good)

Therefore, MRP is important in the determining wages. Workers with higher productivity will tend to get higher wages. Also, workers who help produce profitable goods will get higher salaries. For example, lawyers and professional footballers get high salaries because the Marginal revenue of their goods are high.

In practise, it can be difficult to determine the MRP of workers, for example, many in the service sector do not produce a tangible output e.g. nurses and teachers.

see also: mrp and determination of wages - essay
Wages are also determined by supply of labour.

Labels: wages

- reasons for pay differential's, especially among different age groups, and different ethnic groups.

see:

• Why women are paid less than men
• Labour Market imperfections
• Reasons for Unemployment amongst ethnic minorities
• Essay: Explain wage differentials
  

Labels: readers questions, wages

" Using marginal productivity theory, examine the view that 'wages are determined not by productivity alone but by the interaction of demand and supply of workers of various skills' "

Edexcel Unit 5a labour Markets.


Marginal Productivity theory states that demand for labour depends upon marginal revenue product (MRP) MRP=MPP * MR.

Basically, demand for labour depends upon the productivity of workers and the price of the goods that the workers are producing.

For example, strawberry pickers will be paid depending upon how many strawberry's they pick. It is easy to measure productivity; the more you produce, the more you will be paid.

However, many other factors determine wages.

• Supply (inelastic supply = higher wages)
  
• Monoposony vs Competitive markets
• Trades unions / min wages
• Difficulty of determining MRP of workers
• Firms non profit maximising
• part time / full time
• service sector / private sector.

See:

• Wage Determination in competitive Markets - the theory of wage determination MRP theory
• Labour Market Imperfections - what else determines wages. Basically this is the evaluation part of this question
  

Labels: wages

Examine Reasons Why Women's average wage is Less than Men's average wage.

• In US. The National Committee on Pay Equity used the occasion to announce that among full-time workers, women make only 77 cents for every dollar paid to men. (1)
• In UK the gender pay gap is 12.6% (down from 17% in 1997) (2)
  

Reasons for Wage differentials include:

1. Level of Skills.

Skills and qualifications are an important factor in determining wages. If men had better qualifications, this could explain their higher wages. With regard to A-levels and university degrees, female qualifications are generally as good as men. However, for certain high paying professions, such as, accountancy and law, there are more qualified men than women, although even this gap is now closing.


2. Differences in Productivity.

According to MRP theory, it is a workers productivity (MRP) that determines wages. In heavy manufacturing, male productivity is likely to be higher. However, now that the economy is mostly service sector, this argument is only applicable to a small % of jobs.


3. Discrimination

Lower wages for women could be due to discrimination. Employers may be less willing to promote women; they may be even pay lower wages for same job.

In theory, sex discrimination, in the labour market, is outlawed by Sex Discrimination Act 1976. However, in practice it can be difficult to prove, especially with regard to promotion - if a women isn't promoted, is it really discrimination or something else?

4. Women take Career Breaks to Have Children.

UK Maternity law means a women can be secured of her job, whilst having a child. However, taking a break from work means women are less likely to get promoted. Also, women of childbearing age, may be viewed as a liability. This is because if they become pregnant the firm has to pay maternity leave, and find somebody to fill the temporary gap. For small firms, this can be a significant cost. This reason is quite significant, although, many women are choosing to have children later in life - if at all.

5. Women Choose Lower Paying Jobs.

Traditionally it has been argued women choose lower paid jobs like nursing, childcare. These are lower paid than other careers such as lawyers, and accountants. However, traditional job patterns are changing, women are increasingly choosing to do do "male dominated jobs". This is due to changing social changes, and changing educational standards. But, this remains one of the most significant factor for explaining wage differentials between men and women.

6. Different Types of Jobs

Women more likely to have part time / temporary jobs. in the service sector, these jobs are lower paid because firms often have monopsony power. Women also have lower travel time. In order to look after children, they need jobs closer to the home; this limits the range of jobs available.


Harvard economist Claudia Goldin replied "There are certainly instances of discrimination, she says, but most of the gap is the result of different choices. Other hard-to-measure factors, Goldin thinks, largely account for the remaining gap -- "probably not all, but most of it."

More on: Labour Market Economics

References:

(1) Women's Pay Gap explained
(2) Women and Equality Unit:

(3) Wage Gap amongst Male and female Engineers

Labels: labour markets, wages