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VCEE Scope & Sequence EPF Unit 13

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UNIT 13Labor Markets, Human Capitaland Income (9 days)

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UNIT 13 – LABOR MARKETS, HUMAN CAPITAL ANDINCOME (9 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away. 2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here: student’s lifetime income will depend on the choices he/she makes in high school andpost-secondary education. Due to the importance of bringing this home to students, this unitelaborates on the theme of developing one’s human capital for which the foundation was laid inUnit 6, “What will determine my income?” More than ever before, people will change careersand occupations. Also, more and more, the existence (or non existence) of jobs is influenced byglobalization as discussed in Unit 10. An understanding of labor markets provides an essentialunderpinning to making choices about developing one’s human capital. Details regarding typesof income and employment benefits complete the income picture prior to tax considerations inthe next unit.EPF.10 The student will develop consumer skills byb) examining the effect of supply and demand on wages and priceDays 1 and 2 Demand for laborDay 3 Supply of laborEPF.15 The student will demonstrate knowledge of income earning and reporting bya) examining how personal choices about education, training, skill development and careersimpact earningsDays 1 and 2 How and where can you develop your human capital?EPF.15 The student will demonstrate knowledge of income earning and reporting byb) differentiating among sources of incomeDay 1 Wages, interest, profitsEPF.15 The student will demonstrate knowledge of income earning and reporting byd) investigating employee benefits and incentivesDays 1 and 2 Benefits and incentivesEvaluation DayVirginia Council on Economic Education

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EPF.10 The student will develop consumer skills byb) examining the effect of supply and demand on wages and pricesDays 1 & 2 - Demand for laborContent KnowledgeDemand for labor changes with the demand for skills, which changes with the demand for goodsand services. Comprehending this requires a review of what causes demand to change. Studentsneed to realize that employability depends on having skills that are transferable among differentjobs and that are in demand.VocabularyDerived Demand - Demand resulting from what a good or service can produce, not demand forthe good or service itself.Determinants of Demand - Factors other than the price of a good or service that change (shift)the demand schedule, causing consumers to buy more or less at every price. Factors includeincome, number of consumers, preferences and prices of related goods.Productivity - The amount of output (goods and services) produced per unit of input (productiveresources) used. In this case, the value of a worker’s output compared to the worker’s wage.Virginia Board of Education FrameworkWorkers who invest in their own human capital generally become more productive. Productiveworkers lower the cost of production, thus employers seek to hire the more productive workers.Workers with more knowledge and skill generally earn more than unskilled workers.The demand for workers is derived from the demand for the goods and services they make.When demand for a good or service falls, demand for the workers who produce the good orservice rises, demand for workers does too.According to the law of demand, people buy more at lower prices and less at higher prices. Allelse being equal, prices rise with an increase in demand and fall when demand decreases.Demand is affected by non-price factors such as changes in the number of consumers, consumerincome, taste, expectations, and the price of related goods (i.e., complements and substitutes).Teaching TipsVirginia Council on Economic Education

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1) Remind students that they learned about supply and demand in Unit 4. Ask a student toname a product. [If helpful for the later development of this example, have a studentcome to the board and draw a graph illustrating the supply and demand for that product.Numbers need not be included in the graph.] Ask the class: What resources go intoproducing this product? (Guide the students into naming labor). Ask: What determineshow much labor is needed? Students should come to recognize that when there is moredemand for the product, there is more need for labor to produce the product. Explain thatthis is the concept of derived demand – the quantity of resources, including labor that isdemanded, depends on demand for the product. This is true across all products andservices. Therefore, the desire of employers to hire employees depends on the existenceof demand for their products.2) Remind students of the determinants of demand, in preparation for working with thesuggested article on dying industries. What are the causes of shifts in demand? Theteacher may wish to review Unit 4, “The Price System” in preparation for teaching thisday’s lesson. Use the student-drawn supply and demand graph to go over some examplesof how each determinant causes the demand curve to shift.3) Have students read portions of the article on dying industries, or assign it for homework.(The teacher may choose to highlight the relevant sections.) Ask: What types of jobs maybe affected? What is causing these industries to die? (In many of the technologicaladvance cases, it is a change in demand for the products that they produce; however, theexternal competition factor relates primarily to supply, rather than to changes in demandfor the products. Supply will be addressed on the following day.)4) In cases where it is a change in demand causing the decline, what are the changes indeterminants of demand that are shifting demand for these products? (In some cases, thedeterminant is prices of related goods. For example, once a family has a computer, thepresence of free content on the internet means that news from internet sources (asubstitute good) is free, so demand for newspapers, which are not free, falls.Photofinishing is similar: once one has a digital camera, computer, and printer, homeprinting (a substitute for photofinishing) is very inexpensive, so people are switching tothe substitute.)5) Continue the discussion of jobs being lost in the dying industries. Have students thinkbeyond the retail to include manufacturing and service/support. Ask students to suggestindustries that might require similar employees. What type of jobs would be available andhow might they be affected by the shift? What type of skills will be necessary?Lessons and ResourcesReadingUSA Today: Dying Industries Council on Economic Education

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Day 3 - Supply of laborContent KnowledgeThe days of choosing a career, getting trained for it, and then settling into it have changed to areality of rapid change and evolution. Students need to understand how earnings relate to supplyand demand, and how they can seek out careers with good potential by building and continuouslyimproving skills to make themselves employable.VocabularyDeterminants of Supply - Factors other than the price of a good or service that change (shift)the supply schedule, causing producers to supply more or less at every price. Factors includenumber of producers, production costs, and technology and productivity.Human Capital - The health, education, experience, training, skills and values of people. Alsoknown as human resources.Human Capital Investment - Investment of time, effort and resources in education andtraining--to increase one's own knowledge, skills, health, etc., or to develop those assets inothers.Virginia Board of Education FrameworkAn increase in the supply of workers with a specific skill tends to decrease their wages, while alimited supply of such workers tends to increase wages.Prices fall with an increase in supply and rise with a decrease in supply. Supply is affected bychanges in the number of suppliers, cost of production, technology, expectations, governmentpolicies, and catastrophic events (e.g., hurricanes, wars).Teaching Tips1) In the dying industries article discussed on the previous day, several of the industrieswere suffering from external competition. Explain that lower priced labor in other partsof the world is replacing the use of US labor in many areas of manufacturing. This isparticularly true with regard to manufacturing that uses unskilled labor.2) The teacher may wish to use the simulation activity from the Personal Decision Makinglesson below; however, the teacher will want to update the wage amounts to reflectcurrent wages.3) Explain that a supply and demand graph can be used to understand the pay that peoplereceive for their labor. Have students tell you step by step how to draw a supply anddemand graph. Label the graph “Supply and demand for labor in an industry”. The ideabehind this graph is that it illustrates the supply and demand for the labor that employeessupply. So, the suppliers in this graph are workers. Ask: Who are the demanders oflabor? (Employers.) Ask them to recall what they learned about derived demand. So ifVirginia Council on Economic Education

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consumers want to buy a lot of the products that this industry makes, how will it changethe appearance of the graph? (Demand will shift to the right.) What does the price axisrepresent on this graph? (The price of labor, which is the rate of pay to workers.) Whateffect will the rightward shift have on workers’ pay? (An increase.) What effect willthere be if many people want to work in this industry? (Supply shifts right.) How willthat affect pay? (It will decrease.)4) What can we conclude about the characteristics of industries in which we want to work,assuming we want to earn high pay? (We would like to find industries where demand fortheir products is projected to be strong, and where there is not a large supply of workers.)What makes for a more limited supply of workers in an industry? Ask: Do you knowmany people whose parents are heart surgeons or nuclear physicists? (Most likely not.The supply of workers will be more limited if special skills and education are required.)5) The teacher can provide pages of the Occupational Outlook Handbook, or have studentsvisit the site and look for pre-selected careers or careers of interest. Students should befocused on the career requirements, training and job outlook over the next 10 years.Students should be reminded that in some cases, they may be in training for a goodportion of that period.Lessons and ResourcesPersonal Decision Making Lesson 4: A Student’s Potential in the Labor Market: It’s a Matter ofSupply and Demand.ReadingsOccupational Outlook Handbook St. Louis Fed Labor Market video day 3. Council on Economic Education

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EPF.15 The student will demonstrate knowledge of income earning and reporting bya) examining how personal choices about education, training, skill development and careersimpact earningsDays 1 & 2 - How and where can you develop your human capital?Content KnowledgeJobs and careers are changing. Students need to build an awareness of careers that can build ontheir natural abilities and interests, and the kinds and locations of training those careers require.Virginia Board of Education FrameworkHuman capital refers to the knowledge and skills a person possesses.People invest in their own human capital when they gain knowledge and skills througheducation, training, and experience.People with more education and skills tend to earn higher incomes than uneducated and unskilledworkers.Teaching Tips1) As a reintroduction to the important role of human capital, the teacher may wish to use theactivity simulating different levels of human capital in the lesson “Invest in Yourself” (below).2) The teacher may wish to review Unit 6, “What will determine my income?” in preparation fortoday’s lesson. Students may already have participated in an inventory of their human capital. Ifso, refer them back to the results of that inventory. If not, refer to the resources set out at Day 1of Unit 6. The guidance department may also have a variety of assessments of skills andinterests.3) Have students continue to seek information from the Occupational Outlook Handbook orelsewhere on jobs that may be of interest. Whereas the previous day’s focus was on the outlookfor various occupations, focus now should be on the students’ aptitudes and interests, theparticular education, training, and skill requirements. In addition to those requirements, studentsshould consider geographical factors (are they willing to move; whether the type of training orschooling necessary is available nearby), and salaries.4) Using materials in the guidance office as well as electronic media, students should investigatefurther what type of training is necessary for their job interest, where it is available, and howmuch it would cost. Students should also look critically at the job placement rate of the traininginstitution.Virginia Council on Economic Education

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5) Direct students once again to their goals and the estimated cost of achieving those goals. Dotheir cost estimates for post-secondary education need revision? How might they fund theirpost-secondary training? Are there alternatives that may be acceptable? Have students evaluatealternatives and possible funding schemes. You may wish to have them use the PACED decisionmodel for this purpose.Lessons and ResourcesOnlineOccupational Outlook Handbook’s Your Paycheck Curriculum, Lesson 1 “Invest in Yourself” Decision Grid the following:1. Lesson 1 of The Invest in What’s Next Human Capital Line Activity3. Atlanta Fed Human Capital Infographic and part 1 of the Human Capital lesson. Council on Economic Education

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EPF.15 The student will demonstrate knowledge of income earning and reporting byb) differentiating among sources of incomeDay 1 - Wages, interest, profitsContent KnowledgeSome compensation packages involve different types of pay. Students need to understand whateach kind is and how to calculate it.VocabularyBonuses – Additional compensation received in addition to wage or salary, usually awarded formeeting certain targets or successful completion of a project.Commission – Compensation based on the amount of business transacted, usually measured as apercentage of sales.Overtime – Additional compensation based on hours worked in excess of a maximum during agiven period. In the U.S., overtime is usually awarded for time worked in excess of 40 hours perweek, and usually at a rate equivalent to 1 ½ times the regular wage.Piece Rate – Compensation based on the number of units produced.Salary – A regular payment, often at monthly or biweekly intervals, made by an employer to anemployee, especially in the case of professional or white-collar employees. Salaries are paid forservices rendered and are not based on hours worked.Tips – Additional compensation provided by customers to workers in certain service sector jobs.Tips are frequently given for services like waiting on tables or personal services like hair care.Wage – Payments for labor services that are directly tied to time worked, or to the number ofunits of output produced.Virginia Board of Education FrameworkIncome can be earned or unearned.Earned income includes:● Salary● Hourly wages● Overtime● Tips● Commissions● Bonuses● Piece rateUnearned income includes● Interest● Return on investment● Inheritance● GiftsVirginia Council on Economic Education

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Teaching Tips1) Explain that income is divided into two categories, earned and unearned. Ask: What do youthink unearned income refers to? (Interest, returns on investment, inheritance and gifts.) Are allof those really unearned? (They may have some interesting thoughts on whether inheritance andgifts are unearned.) Remind them what they learned about savers earning interest as a paymentin return for forgoing spending their money (Unit 11). In Unit 12 they learned about therelationship between risk and reward, where riskier investments pay higher interest as aninducement to take on greater risk. So from an economic point of view, interest and returns couldbe seen as “earned” by savers and lenders—but the convention is to term all of these items“unearned income.”2) On a surface where all of the students can see, demonstrate how different types ofcompensation are calculated, using the following examples:Salary$42,500 per year paid monthly =$42,500 per year paid bi-weekly (remind students there are 52 weeks in a year) =Bonus5% of the above salary =Commission2.5 % of weekly sales of $900 =1.5% of weekly sales of $1,350 =Wage$8.75 per hour for 35 hours =$10.25 per hour for 40 hours =OvertimeCalculated on the first rate above, time-and-a-half for 8 hours =Calculated on the second rate above, time and half for 5 hours =Piece Rate125 units at $2.50 per unit =75 units at $6.10 per unit =Tips15% on a check of $30.00 =18% on a check of $42.00 =Virginia Council on Economic Education

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The teacher should provide additional examples, perhaps including combinations. Example:Work as a salesman with a basic wage of $3.25 per hour for 20 hours and commission of 2% ofweekly sales of $1,650.Add St. Louis Fed It’s Your Paycheck Curriculum, Lesson 2 ‘W is for Wages, W-4, and W-2lesson. The student will demonstrate knowledge of income earning and reporting byd) investigating employee benefits and incentivesDays 1 and 2 - Benefits and incentivesContent KnowledgeThe total compensation package for many jobs goes far beyond the basic wage or salary. Anunderstanding of the value of benefits is essential in choosing which job opportunities to pursue.VocabularyChild Care – Deductions made from gross pay to fund certain kinds of child care expenses.Deductions may be made pre-tax.Elder Care – Deductions made from gross pay to fund certain kinds of elder care expenses.Deductions may be made pre-tax.Health Insurance Plans – Deductions made from gross pay to help pay all or part of healthinsurance premiums. These can include basic health, major medical, dental and vision plans.Some employees will pay the entire monthly premium. Some will pay part of the monthlypremium with employees paying the rest. Some will make insurance available if the employeewants to purchase it – paying the full premium.Matching Contributions – Additions made to gross pay by an employer to fund certain types ofdeductions like saving for retirement plans.Paid Sick Days – Compensation given to employees when they are ill and can’t work. This isusually made at the daily rate for a limited number of days.Paid Vacation – Compensation given to employees during vacation time. This is usually made atthe daily rate for a limited number of days.Parking – Deductions from or additions made to gross pay to pay for parking in certain areas.Profit Sharing – Additions made to gross pay of employees from profits. Employees receive ashare of profits of the employer when certain levels are met or exceeded.Savings Plans – Deductions from gross pay to help fund retirement or other savings vehicles.Deductions may be made pre-tax and may be partially matched by employers.Virginia Board of Education FrameworkBenefits are part of an employee’s compensation, over and above wages or salary. They add tothe financial value of a job and may include● Matching contributions to tax sheltered annuities, such a 401 (k) and 403 (b)retirement savings plansVirginia Council on Economic Education

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● Saving plans● Parking● Health insurance plans (medical, dental)● Child care● Elder care● Paid vacation● Paid sick days● Profit sharingIncentives are offered as motivation for employees to perform well and may include● Bonuses● Profit sharing● Free travel or merchandiseTeaching Tips1) Ask students to speculate about the difference between benefits and incentives. While all ofthe items on the above list from the Virginia Board of Education Framework would qualify asincentives to accept one job over another that offers fewer benefits, “incentives” in this contextrefers to extra compensation that is tied to how well the employee performs.2) The teacher should spend time explaining basic and less common benefits. As background, theteacher will want to investigate the Bureau of Labor Statistics ( resources devotedto employee benefits (below). Point out the dollar value of benefits such as paid vacation andpaid sick leave and other readily quantifiable benefits such as matching contributions, paidparking, or employer-provided childcare. For the value of other benefits, one would need specificinformation about insurance costs, etc.3) If computers are available, have students investigate benefits available at well knownemployers, or employers that they might like to work for, in government, business, or thenonprofit sector. Many company and organization websites include information about theirbenefits packages.4) Use the second day to have students report on their findings.Lessons and ResourcesOccupational Outlook Quarterly Summer 2005, An overview of employee benefits Benefits Survey How to Build a Competitive Employee Benefits Package Council on Economic Education

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EVALUATION DAYVirginia Council on Economic Education