Reviewer Final Exam

1. Present value

Present Value

allows us to compare a certain amount of money spent and received in different time
periods.

PV=FV/(1+r) rearranging into FV= PV (1+r)

Legend: PV = Present Value

FV = Future Value
r = rate of interest or rate of discount

Example! We assume a person only lives two years..

If the rate of discount iss

5% percent the person
will choose to attend If the rate of discount is 15%
school percent the person will choose to
not attend school
 2. Wage-schooling Locus
The Wage-Schooling Locus
gives the salary that employers are willing to pay a particular worker for every level of schooling.
The Wage-Schooling Locus is:
1. Upward sloping: Workers who have more
education must earn more as long as educational
decisions are motivated only by financial gains.
2. The slope is the marginal rate of return to
schooling: It tells us by how much a worker’s
earnings would increase for every additional year of
schooling,
3. The wage-schooling locus is concave: The
monetary gains from each additional year of
schooling decline as more schooling is acquired.

3. Marginal Rate of Return

5 things that affect the decision-making process of going to college:

1. College Wage increases the chance of going to college.
2. Highschool wage decreases the chance of going to college.
3. The number of school years decreases the chance of going to college.
4.A higher (lower) rate of discount decreases (increases) the chance of going to college.
5.A higher (lower) cost of education decreases (increases) the chance of going to college.

45,000 − 40,000
× 100 = 12.5%
40,000
48,000 − 45,000
× 100 = 6.7%
45,000
At what year of schooling would you
drop if your discount rate was 10%? 13 years
If MRR>r, He should continue schooling, If MRR<r, Quit schooling.
Stop schooling when the marginal rate of return to schooling = r
 4. Income and wealth inequality
Measuring Inequality
The various ways of measuring inequality in an
income distribution. It introduces the concept of
quintiles, dividing households into five equal
groups based on income. The Lorenz curve is
explained as a graphical representation of income
distribution, with a “perfect-equality” curve being a
straight line at a 45-degree angle.

The actual Lorenz curve for the U.S. in 2006 is

shown to be below the perfect-equality curve,
indicating income inequality.

The Gini coefficient is introduced as a

numerical measure of inequality, with a
value of 0 representing perfect equality
and 1 representing perfect inequality. The paragraph notes that while an increase in the Gini
coefficient signifies greater inequality, it may not capture the nuances of shifts in income
distribution. Additional measures like the 90-10 and 50-10 wage gaps are suggested to provide a
more detailed understanding of inequality. The 90-10 wage gap measures the difference between
the 90th and 10th percentiles, reflecting the range of the distribution, while the 50-10 wage gap
measures inequality between the "middle class" and low-income workers.
How to solve for the Gini Coefficient
The significant rise in wage inequality in the United States, many studies use a simple framework
involving shifts in labor supply and demand curves. This model breaks down the labor market into
two categories: skilled and unskilled workers, denoted by the wage ratio 'r' and the ratio of skilled
to unskilled workers 'p.'
Figure 7-7 illustrates this model, showcasing a
downward-sloping demand curve reflecting the
demand for skilled workers relative to unskilled
ones. An increase in the wage gap (r) leads to a
decrease in the demand for skilled workers
(lower p). For simplicity, the model assumes a
constant supply of skilled workers, though in
reality, this may change over time.
Changes in economic conditions could widen the
wage gap in two ways: a leftward shift in the
supply curve (reducing skilled workers) or a
rightward shift in the demand curve (increasing
the demand for skilled workers). In recent U.S.
history, there's been a noticeable rise in the number of skilled workers, shifting the supply curve
to S1. This shift, without other changes, should have decreased the relative wage of skilled
workers (moving from A to B). However, the observed increase in the relative wage of skilled
workers suggests a simultaneous rightward shift in the demand curve (to D1), resulting in the final
equilibrium at C. This equilibrium shows an increased proportion of skilled workers and a larger
wage gap. This framework underscores the need to identify factors boosting the relative demand
for skilled labor, with this demand shift needing to be substantial enough to counteract the rise in
the relative supply of skilled workers. The observed trend in wage inequality indicates that the
demand curve "won" the race by increasing faster than the supply curve. Although ongoing
debates persist over the specific factors driving these shifts, existing research points to key
variables commonly examined as the "usual suspects" in analyzing changes in the wage
structure.

Several shifts in the wage structure can be attributed to factors like supply shifts(such as
immigration), the growing globalization of the U.S. economy, shifts in labor market institutions (like
the decline in unionization and the real minimum wage during the 1980s), and skill-biased
technological change favoring skilled workers. However, it's crucial to note that no single variable
stands out as the definitive cause explaining the majority of changes in the wage structure.
5. Employer, employee and customer discrimination
Employer Discrimination
q = f(EW + EB)
where q is the firm’s output, E W gives the number of white workers hired, and E B gives the
number of black workers hired. Note that the firm’s output depends on the total number of workers
hired, regardless of their race. In other words, the firm gets the same output if it hires 50 white
workers and 50 black workers, or if it hires 100 white workers and no black workers, or if it hires
100 black workers and no white workers. As a result, the output produced by hiring one more
worker, or the marginal product of labor ( MPE), is the same regardless of whether the firm hires
a black or a white worker. Because black and white workers are equally productive, any
differences that arise in the economic status of the two groups cannot be attributed to skill
differentials but must arise from the discriminatory behavior of market participants. For simplicity,
we ignore the role of capital in the production process.
Employer discrimination can contribute to wage differentials between different groups of
workers. Wage differentials refer to variations in pay rates among workers, and discrimination by
employers can be one factor influencing these differences. Discrimination in the workplace can
manifest in various forms, including but not limited to gender, race, ethnicity, age, or other
protected characteristics. If black and white workers are perfect substitutes in the production
process, employer discrimination leads to the segregation of black and white workers in the
labor market and to unequal pay for equal work. The firm’s discriminatory behavior also reduces
profits.
Employee discrimination leads to segregation of black and white workers but does not create
a wage differential between the two groups.
Customer discrimination might create a wage differential between black and white workers if
employers cannot “hide” blacks in positions where they have little contact with customers.
Statistical discrimination leads to differential treatment of equally skilled workers belonging to
different groups.

6. Oaxaca decomposition
A method to analyze the which wage differential two groups (e.g. men and women) to determine
the portion of the which differential is to attribute table to differences in skill and the portion that
is potentially attributable to discrimination.

Suppose years of Schooling, s, is the only variable that

affects earnings. The equation for the weekly salaries of
male and female workers are given by

Wm =750+ 93s

Wf =400+85s
On average, men have 15 years of schooling and women have 13 years of schooling.

Male-Female Wage Differential

(750+93*15) -(400+85*13)

2,145- 1,505=640

An average man earns 640 more than the average woman.

Differential due to Discrimination

- (wage for average female if she were male)- (wage for average female)

(750+93*13) -(400+85*13) 1,959- 1,505=454

454 out of the 640 can be attributed to discrimination.

7. Union Wage Gap

The union wage gap is then defined by which is the percent wage differential between
union jobs and nonunion jobs. Estimates of the union wage gap typically adjust for
differences in socioeconomic characteristics (such as education, age, industry, and
region of employment) between workers who are in union jobs and workers who are in
nonunion jobs.

is the average wage in union jobs.

is the average wage in nonunion jobs.

UNION WAGE GAP measure the percentage wage differential between union jobs and
nonunion jobs.
It typically adjusts for differences in socioeconomic characteristics of the workers
including education, age, and industry.
How do unions affect wages in nonunion jobs?
Threat Effects
Profit-maximizing firms have an incentive to keep the union out and might be willing to
share some of the excess rents in the hope that the workers will not unionize. It implies
that unions have a positive impact on nonunion wages. Underestimation of the impact of
union on the union wages.
Spillover Effects
As workers lose jobs in union firms (due to union-mandated wage increases), the supply
of workers in nonunion sector increases and the competitive wage falls. It implies that
unions have a negative impact on nonunion wages. Overestimation of the impact of
union on union wages.
8. Efficiency cost of the Union
 9. Right to self-organization
Scope of Self Organization Under the Labor Code
1. Forming, joining, or assisting labor organizations for the purpose of collective bargaining
through representatives of their own choosing.
2. To engage in lawful concerted activities for the purpose of collective bargaining or for their
mutual aid and protection. (Labor Code, Art. 257)
Why workers organize?

• Self-Advancement
• Job Security
• Upholding the rule of law over the arbitrary exercise of power by capital
• Provide employees a sense of participation in the enterprise.
Who may exercise right to self-organization?

• All persons employed in commercial, industrial and in religious, charitable, medical or

educational institutions (profit or nonprofit)
• Includes the right to, Form, Join, and Assist Labor organizations of their own choosing.
EXCEPTIONS:

• Managerial and Confidential employees

• Employee-Members of Cooperatives
• Religious Objectors
• Employees of Foreign Embassies, Consulates and International Organizations
• Government Employees
Government employees

• All other employees of the civil service shall have the right to form associations for
purposes not contrary to law. (Art. 254, Labor Code)
• E.O. 180: Guidelines for the exercise of the right to organize of government employees,
creating a Public Sector Labor Management Council, and for other purposes.
• Right to Self-Organization under EO 180 is for a limited purpose – only for the
furtherance and protection of their interests not for purposes of collective bargaining.
Coverage of EO 180

• Applies to all government employees.

• Employees of all branches, subdivisions, instrumentalities, and agencies of the
government, including GOCCs with original charters.
• Excluded from Coverage: Members of the Armed Forces of the Philippines, Including
police officers, Policemen, Firemen, and Jail guards.

10. Anti-Sexual Harassment

Anti-Sexual Harassment Act of 1995 REPUBLIC ACT NO. 7877
Where Committed (WET) - Working, Education, and Training environment.
Who Commits - 1. Manager 2. Employer 3. Employee 4. Professor 5. Agent of the employer 6.
Teacher 7. Instructor 8. Supervisor 9. Coach 10. Trainer 11. Any Other person having authority,
influence or moral ascendancy over another.
How Committed- Person liable demands, requests, or otherwise requires any sexual favor from
the other, regardless of whether the demand, request or requirement for submission is accepted
by the latter.
Work Related/Employment Environment, Sexual Harassment Committed When
1. The sexual favor is made as a condition:
a. In hiring or in the employment, reemployment or continued employment of said individual
b. In granting said individual favorable compensation, terms, conditions, promotions or
privileges
c. The refusal to grant the sexual favor results in limiting, segregating or classifying the
employee which in any way would discriminate, deprive or diminish employment opportunities or
otherwise adversely affect said employee
2. The above acts would impair the employee’s rights or privileges under existing labor laws.
3. The above acts would result in an intimidating, hostile or offensive environment for the
employee. (Sec. 3[a])

Education or Training Environment, Sexual Harassment Committed When

1. The sexual favor is made as a condition:
2. The above acts would impair the employee’s rights or privileges under existing labor laws.
3. The above acts would result in an intimidating, hostile, or offensive environment for the
employee. (Sec. 3[a])
Duty of Employer
1. Promulgate appropriate rules and regulations prescribing the procedure for investigation of
sexual harassment cases as well as guidelines on proper decorum in the workplace.
2. Create a committee on decorum and investigation of cases on sexual harassment. (Sec. 4)
Liability of Employer / Head of Office
Solitarily liable for damages arising from the acts of sexual harassment committed in the
employment, education or training environment if the employer is informed of such acts by the
offended party and no immediate action is taken.
Prescriptive period to file action: 3 years (Sec. 7)
Penalties: Any person who violates the provisions of this Act shall, upon conviction, be
penalized by imprisonment of not less than 1 month nor more than 6 months, or a fine of not
less than Php 10,000 nor more than Php 20,000 or both such fine and imprisonment at the
discretion of the court.

11. Safe Spaces Act

Safe Spaces Act R.A. No. 11313
The crime of gender-based sexual harassment in the workplace includes the following:
(a) An act or series of acts involving any unwelcome sexual advances, requests or demand for
sexual favors or any act of sexual nature, whether done verbally, physically or through the use
of technology such as text messaging or electronic mail or through any other forms of
information and communication systems, that has or could have a detrimental effect on the
conditions of an individual’s employment or education, job performance or opportunities;
(b) A conduct of sexual nature and other conduct based on sex affecting the dignity of a person,
which is unwelcome, unreasonable, and offensive to the recipient, whether done verbally,
physically or through the use of technology such as text messaging or electronic mail or through
any other forms of information and communication systems;
(c) A conduct that is unwelcome and pervasive and creates an intimidating, hostile or humiliating
environment for the recipient: Provided, That the crime of gender-based sexual harassment may
also be committed between peers and those committed to a superior officer by a subordinate, or
to a teacher by a student, or to a trainer by a trainee; and
(d) Information and communication system refers to a system for generating, sending, receiving,
storing or otherwise processing electronic data messages or electronic documents and includes
the computer system or other similar devices by or in which data are recorded or stored and any
procedure related to the recording or storage of electronic data messages or electronic
documents. (RA 11313)
Duties of Employer- Employers or other persons of authority, influence or moral ascendancy in
a workplace shall have the duty to prevent, deter, or punish the performance of acts of gender-
based sexual harassment in the workplace.
Duties of Employees and Coworkers
a. Refrain from committing acts of gender-based sexual harassment.
b. Discourage the conduct of gender-based sexual harassment in the workplace.
c. Provide emotional or social support to fellow employees, co-workers, colleagues or peers
who are victims of gender-based sexual harassment; and
d. Report acts of gender-based sexual harassment witnessed in the workplace.
Liability of Employers
a. non-implementation of their duties under Section 17 of the Act, as provided in the penal
provisions: or
b. Not taking action on reported acts of gender-based sexual harassment committed in the
workplace.
Any person who violates subsection (a) of this section, shall upon conviction, be penalized with a
fine of not less than five thousand pesos (P5,000.00) nor more than Ten thousand pesos
(P10,000.00).
Any person who violates subsection (b) of this section, shall upon conviction, be penalized with a
fine of not less than ten thousand pesos (P10,000.00) nor more than fifteen thousand pesos (P
15,000.00). (Sec. 19, RA 11313)

12. Strike

Strike results from a disagreement between the firm and

the union about how the rents or excess profits should be
divided between them.
Strikes are costly, causing decline in profits for the firm and
decline in income for the workers.
Post strike settlement occurs at point S.
If they just agreed to a prestrike settlement shown at point
R*, both of them would havebeen better off.
Strikes are NOT Pareto Optimal.

Grounds for Strike or Lockout:

1. Unfair Labor Practice (ULP) of the Employer and the Union
2. Collective Bargaining Deadlock (CBD)
Who can declare a strike or lockout.
1. Any certified or duly recognized bargaining representative on the grounds of bargaining
deadlock and ULP.
2. Employer; or
3. In the absence of #1, any legitimate labor organization in the establishment (only for ULP) (IRR
Labor Code, Sec. 2, Rule XII, Book V)

Illegal Strike:
1. Is contrary to a specific Prohibition of law, such as strike by employees performing
governmental functions
2. Violates a specific requirement of law (as to Procedure)
3. Is declared for an unlawful Purpose, such as inducing the employer to commit an unfair labor
practice against nonunion employees
4. Employs unlawful Means in the pursuit of its objective, such as widespread terrorism of non-
strikers
5. Violates an existing Injunction
6. Contrary to an existing Agreement, such as a no-strike clause or conclusive arbitration clause
(Toyota Motor Phil. Workers Association v. NLRC, G.R. No. 158789, 2007)

PROCEDURAL REQUIREMENTS
1. Notice of Strike /Lockout
2. Cooling-off Period
3. Strike /Lockout Vote
4. Strike /Lockout Vote Report
5. 7-day strike/lockout ban

13. Unfair Labor Practices

Elements of Unfair Labor Practice

• There is an employer-employee relationship.

• 2. The act done is expressly defined in the Code as an unfair labor practice
• 3. Act complained of as ULP must have proximate and causal connection with/ violation
of:
a. Exercise the right to self-organization.
b. Exercise of the right to collective bargaining (Allied Banking Corporation v.
CA, G.R. No. 144412, 2003)
• Prescription of actions for ULP The offense prescribes in 1 year.
Jurisdiction of Criminal Charge of ULP
●The criminal charge falls under the concurrent jurisdiction of the MTC or the RTC.
●Only substantial evidence is required in the labor case while proof beyond reasonable doubt is
need in the criminal prosecution.
●Recovery of civil liability in the administrative proceedings shall bar recovery under the Civil
Code.
Aspects of Unfair Labor Practice
Exception: Management Prerogative
So long as a company’s management prerogatives are exercised in good faith for the
advancement of the employer’s interest and not for the purpose of defeating or circumventing
the rights of the employees under special laws or under valid agreements, the Court will uphold
them. (LVN Picture Workers v. LVN, G.R. No. L23495, 1970)
Four Forms of Unfair Labor Practice in Bargaining
1. Failure or Refusal to Meet and Convene
2. Evading the Mandatory Subjects of Bargaining
3. Bad Faith in Bargaining
4. Gross Violation of the CBA

Who can Commit ULP?

Both employers and labor organizations can commit acts of unfair labor practices in collective
bargaining. However, the labor organization must be the representative of the employees before
any act it does may be considered as a violation of the duty to bargain collectively. (Labor Code,
Arts. 259[g] and 260[c])

Acts Constituting Unfair Labor Practice of Employers (Art. 259)

1. Interference
2. Yellow dog condition
3. Contracting out
4. Company unionism
5. Discrimination for or against union membership
6. Discrimination because of testimony
7. Violation of duty to bargain
8. Paid negotiation
9. Violation of CBA

ULP by Labor Organizations (Labor code, Art. 260)

1. To restrain or coerce employees in the exercise of their right to self – organization.
2. To attempt to or cause an employer to discriminate against an employee to whom membership
in the labor organization was denied or to terminate an employee on any ground other than the
usual terms and conditions under which membership or continuation of membership is made
available to other members.
3. To refuse to bargain collectively with the employer, if it is the representative of the employee.
4. To attempt to or cause the employer to pay money or other things of value, in the nature of an
exaction, for services which are not performed or not to be performed. This includes fees for union
negotiations.
5. To ask or accept negotiations or attorney’s fees from employers as part of the settlement in any
dispute.
6. Violation of CBA.