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Just the Facts

How do economists categorize workers?

Most commonly, economists categories based on education and skill: unskilled workers (common laborers), semi-skilled workers (those in jobs requiring a moderate level of training), skilled workers (workers who have mastered a craft), and professionals (workers in jobs that requires undergraduate or graduate college degrees).

Have they always categorized workers this way?

No, during the nineteenth century the work force was broken into manufacturing, agriculture, and commerce. But as the American economy grew more complex during the twentieth century, economists added another set of occupational categories: blue-collar and white-collar workers. The former included manufacturing and industrial workers, people engaged in craft production, and non-farm laborers. White collar workers included clerical and sales personnel, managers and executives, as well as professionals, such as doctors, lawyers, accountants, engineers, and teachers.

Why did economists abandon these categories?

The explosion of the service sector of the economy left this simple white-collar/blue-collar differentiation obsolete.

What is the service sector?

The service sector is just about everything outside of farming, construction, mining, and manufacturing. It includes workers engaged in transportation and communication, sales, banking, and entertainment. More broadly, the service sector included all those employed in the production or delivery of a service rather than a good.

Why do economists even categorize workers?

These categories help economists monitor changes in the economy. For example, during periods of economic stress, these categories enable policy makers to identify those parts of the economy most in need of assistance. More broadly, these categories help economists track changes in the workforce and the structure of the economy.

How are wages determined?

Wages—the price of labor—are determined like all prices by supply and demand. They call this the market theory of wage determination.

Does the government have any influence over wages?

Yes. For starters the federal government influences wages by setting the minimum wage. Only about 3% of the work force earns the minimum wage, but by setting a wage floor above market wage rates, governments influence the wages paid those earning more than the minimum wage. When the floor rises, other wages rise as well.

The federal government also influences wages through legislation regarding federal contracts. The Davis-Bacon Act requires that all private agencies and companies receiving federal funding pay the “prevailing wage.”

How about unions?

Yes. In industries in which workers are well organized, wages are determined not just by the market but by the strength of the union in the bargaining process. Economists acknowledge the impact of unions in setting wages in the theory of negotiated wages.

Do most workers belong to unions?

No. At their peak, unions represented about 35% of all non-agricultural workers. Today they represent only about 12%

Why has union membership declined?

Some economists argue that company hostility to unions is primarily to blame. Others argue almost the opposite—that overly aggressive unions are to blame for their loss of influence.

Still other economists argue that the changing composition of the workforce is more responsible for declining union membership. For many of today’s workers, such as teenagers, their jobs represent a second or temporary income. And consequently, they are less interested in the long-term employment objectives pursued by unions.

Some economists argue that the shifting structure of the American economy is more responsible for declining union membership. Far more jobs are being created in the service sector which has proven resistant to union organization.

Finally, some economists suggest that since government has taken over some of the roles filled by unions in the past, union membership is less essential to workers.

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