Business, Labor and Capital

1. Business, Labor and Capital Jessica and I want to start a partnership selling toilet paper. I want to form a corporation called Paul’s Ballpark Garlic Fries. Hey! This is a nice segue to the chapter on business. I want to start a sole proprietorship tasting cakes.

2. Business, Labor and Capital • Objectives: • Analyze the advantages and disadvantages of sole proprietorships • Analyze the advantages and disadvantages of partnerships • Explain how a corporation is formed and describe the characteristics of a corporation • Explain how stocks and bonds differ • Analyze the advantages and disadvantages of corporations • Analyze horizontal, vertical and conglomerate combinations, franchises, cooperatives and nonprofit organizations

3. California Academic Standards for Economics 12.1: Students understand common economic terms and concepts and economic reasoning

4. Business, Labor and Capital

5. Business, Labor and Capital 13.2% 14.7% 72%

6. Business, Labor and Capital Advantages of Sole Proprietorships Ease of Start-up Control Profits Let’s see: start up would be a few fliers I could place around town, I control all the labor so everything I make I keep. I run the business out of my house so I don’t have to worry about zoning laws. I like that idea.

7. Business, Labor and Capital Disadvantages of Sole Proprietorships Unlimited liability Sole responsibility Limited growth potential Lack of longevity OK, let’s look at the downside. If I borrow money for fliers and the business goes south it is my sole responsibility to pay off the loan—from my personal funds. Plus I have to do all the tasting myself, meaning a lot of sugar highs—I won’t be able to taste every day.

8. Business, Labor and Capital Key terms Zoning: You may only pursue certain business activities in certain parts of municipalities

9. Business, Labor and Capital Key terms Liability: responsibility for debt Collateral: Anything of value that a borrower agrees to give up if he or she is not able to repay a loan Longevity: the length of a firm’s life Liability: responsibility for debt Collateral: Anything of value that a borrower agrees to give up if he or she is not able to repay a loan Longevity: the length of a firm’s life Liability: responsibility for debt Collateral: Anything of value that a borrower agrees to give up if he or she is not able to repay a loan Longevity: the length of a firm’s life

10. Business, Labor and Capital Licensing laws Ensure that service providers are properly qualified Hey girls. I’m starting a swimming lessons business. That’s cool, Stevie, but remember to get a government issued lifesaving certificate first.

11. Business, Labor and Capital Advantages of Partnerships Ease of start-up—partnership contract outlining the distribution of profits and losses among the partners and outlines each partner’s responsibilities Justina and I just signed a contract starting our new partnership, Hats for Hotties. I’m the brains and Justina provides the muscle. We both act as models.

12. Business, Labor and Capital Advantages of Partnerships Specialization—specific business duties can be assigned to different partners Shared Decision Making Shared Business Losses Stevie selects the hat types from the distributer. I, uh, ensure the distributer gives us a fair price. We both decide on colors and markups as we set prices that we charge. If there are financial losses, we split them 50-50.

13. Business, Labor and Capital Disadvantages of Partnerships Unlimited liability Potential for Conflict Lack of longevity Now I’m alone. Stevie said that Dodger hats would sell more than Giant hats and I believed her. We took a bath and had to pay for the unsellable Dodger hats from our own funds. So we had a fight and dissolved the partnership. It only lasted a week. I feel like such a loser (like the Dodgers.)

14. Business, Labor and Capital General Partners vs. Limited Partners General partners have equal decision-making authority and unlimited liability. Limited partners have little participation in decisions, but their liability is confined to the amount of money they invested. I wish we had had a limited partnership, like my parents suggested. I’m glad we had a general partnership.

15. Business, Labor and Capital Forming a Corporation (Paul’s Ballpark Garlic Fries) Apply for a state license—articles of incorporation Issuance of a corporate charter by the state Owners/Shareholders elect Board of Directors select Corporate officers hire Vice Presidents Department Heads Employees

16. Business, Labor and Capital Stock, dividends, common stock, preferred stock Stock represents ownership of the firm issued in portions known as shares Dividend: profit paid to shareholders Common stock provides shareholders with a voice in how the company is run and a share in any potential dividends Preferred stock provides guaranteed dividends—paid before any received by holders of common stock—but does not grant shareholders a voice in running the corporation

17. Business, Labor and Capital Bailey, Robert and I each own 200 shares of preferred stock in Paul’s Ballpark Garlic Fries and we just got a dividend at $2.00 per share. Yaow!

18. Business, Labor and Capital Corporate bonds Corporate bonds are certificates issued by a corporation in exchange for money borrowed from an investor Stocks represent ownership; bonds indicate that a corporation is in debt to the person who holds the bond. The bondholder does not own any part of the company.

19. Laurie is happy right now. But if Paul’s Ballpark Garlic Fries drops to 50 cents a share, she will lose most of her investment. I’ll still get back all my investment plus 6.5% interest on my bonds held in Amy’s Trombones, Inc., no matter what happens. Business, Labor and Capital

20. Business, Labor and Capital Principal and Interest Principal: the actual amount of money borrowed Interest: amount the borrower must pay for the use of funds, generally calculated in percents Miss Becky is such a good money manager. I’m a lucky dude! The remaining principal on the house is $90,000 and that means about $8,000 in interest, at 4.5%.

21. Business, Labor and Capital Advantages of Corporations • Limited liability (loss for stockholders is limited to the amount invested) • Separation of ownership from management—utilization of specialists to perform complex management tasks • Ease in raising capital (sale of stocks and bonds) • Longevity

22. Business, Labor and Capital I don’t care what Emily thinks. My liability is limited to what I invested (easy come, easy go), and Paul’s Ballpark Garlic Fries will last forever, ‘cuz are soooo tasty. Plus they hire specialists to run the company and if they need more money it’s easy to get.

23. Business, Labor and Capital Disadvantages of Corporations Charters are expensive and difficult to obtain Federal and state governments regulate corporations Slow decision-making process Stockholders are far removed from the actual running of the business Stockholders experience lack of control Corporate profits are taxed twice

24. Business, Labor and Capital Yeah, I think I’ll pick that hot girl I met at the last general membership meeting to serve as the proxy for my shares vote at the next corporate meeting.

25. Business, Labor and Capital Andrew Carnegie tried to buy out competing steel producers through a process called horizontal consolidation. Companies producing similar products merge Carnegie achieved a near monopoly— controlled 80% of U.S. steel production.

26. Business, Labor and Capital Carnegie attempted to control entire steel industry Vertical integration—bought out all of his suppliers Coal/iron mines Ore freighters Railroads Total control over quality & cost of steel

27. Business, Labor and Capital Horizontal, Vertical & Conglomerate Combinations Conglomerates Mergers of companies producing unrelated products--Pepsico

28. Business, Labor and Capital Advantages & Disadvantages of Combinations • Efficiency—centralizing decision making within an industry • Potential for lower costs—buying an existing business is often less expensive than building new plants and offices, hiring new employees and acquiring additional financial capital to expand • Easier to acquire financial capital—bank loans and more shareholder investment • Combinations can lead to increased unemployment • Reduced competition

29. Business, Labor and Capital Franchises

30. Business, Labor and Capital Cooperatives • Businesses owned collectively by their members • Purchasing cooperatives • Marketing cooperatives • Service cooperatives

31. Business, Labor and Capital Nonprofit Organizations Structured like a corporation Unlimited longevity Revenues generally come from charitable contributions or events such as the Relay for Life Income not taxed by the government

32. Business, Labor and Capital Two summers ago, Laurie Baxter made me do a pull up. Man! Did I labor knocking out that pull up. That’s a nice segue into this chapter on labor.

33. Business, Labor and Capital You people don’t know what labor is! In my day, working in Washington’s grist mill, we REALLY had to labor!!!

34. Business, Labor and Capital • Objectives: • Describe factors that affect workers entering the labor force • Explain how the U. S. labor force has changed • Analyze how the U. S. government affects labor • Understand the history of the labor movement in the United States • Describe how labor unions are organized • Identify the main challenges facing unions today • Examine how government attitudes toward labor unions have changed • Understand the major issues that are discussed in labor contract negotiations and how both sides reach a contract agreement

35. California Academic Standards for Economics 12.1: Students understand common economic terms and concepts and economic reasoning

36. California Academic Standards for Economics 12.4: Students analyze the elements of the U. S. labor market in a global setting

37. Business, Labor and Capital The U. S. Labor Force All people who are at least 16 years old and are working or actively looking for work. The civilian labor force makes up about 98 percent of the working population while the military comprises the other 2 percent

38. Business, Labor and Capital OK, so I need a job. What kind should I try to get? I’d like one with good wages—at least $15.00 per hour. OK, now, what skills do I have? Bounty hunter pays great and I have the marksmanship skills. But I don’t like the working conditions and, because of school I have to stay here and can’t travel. But, hey! I could shoot people—now that’s an intrinsic reward. And, there will always be a need for bounty hunters! Food service pays crappy wages, but it takes minimal skills (and I have them.) The working conditions aren’t always great, but I could work close to home. Plus I’d get all the food I could eat and market trends indicate people always want to eat. Party planners get pretty good wages, and I have the requisite skills (I love games.) The working conditions are usually pretty good and I could work close to home. Plus I’d get to play games andeat lots of fun food and market trends indicate people always want good parties for their kids.

39. Business, Labor and Capital

40. Business, Labor and Capital The U. S. Labor Force—Unemployment 2011 Industrialization Capital-intensive—dependent on machines to produce goods; agricultural economies are labor intensive

41. Business, Labor and Capital Women in Today’s Labor Force 60% of America’s women are members of the labor force, compared to 75% of America’s men

42. Business, Labor and Capital Education and Salary/Unemployment 2009

43. Business, Labor and Capital Equal Pay Act of 1963 & Civil Rights Act of 1964 Equal Pay Act of 1963: requires that employers pay the same wages to male and female workers who perform the same job. The Civil Rights Act of 1964 protects workers from employer discrimination based on race, sex, religion, or national origin. The act also established the Equal Employment Opportunity Commission (EEOC)

44. Business, Labor and Capital Affirmative Action Making up for patterns of discrimination against women, members of minority groups and others who were traditionally disadvantaged in the workplace. Programs were aimed at eliminating racial and gender bias in employment practices. Resulted in quotas.

45. Prices and Markets Students, my G’Pa Pete wants you to make another chart based on the following slides. Call it the Supreme Court landmark decision chart.. You will also use it when you study government. Name of Case Year Key Points of the Decision Regents of the U. 1978 Reverse discrimination of C. v. Bakke Ruled against affirmative action and Bakke admitted to UC Davis Med. School But said affirm act. OK

46. Structural Foundations A landmark case from the Warren Burger Court had to do with“reverse discrimination” under the affirmative action issue:Regents of the University of California v. Bakke (1978) Allan Bakke, 35 year old Caucasian, had twice been rejected for admission to the UC Davis medical school. The school reserved 16 places in each entering class for “qualified minorities” as part . . .

47. Structural Foundations . . .of the university’s affirmative action program, in an effort to “redress long-standing, unfair minority exclusions from the medical profession.” Bakke’s college GPA and MCAT scores exceeded those of any of the minority applicants who had been admitted ahead of him. Bakke claimed that he was excluded from admission solely on the purpose of race; or “reverse discrimination.”

48. Structural Foundations Issue: Did UC violate the Fourteenth Amendment’s equal protection clause, and the Civil Rights Act of 1964, by practicing an affirmative action policy? The Burger Court held that the U. C. Davis Medical School could not reserve a certain number of seats for minority students in an incoming class. The quota had violated the Civil Rights Act of 1964 because it made race the sole factor in admissions. The Court did maintain, however, that race could be one of several factors to determine admissions

49. Structural Foundations In 2003, my court made a similar ruling inGratz v. Bollinger. Jennifer Gratz applied to the University of Michigan’s College of Literature, Science and Arts with an adjusted GPA of 3.8 and an ACT score of 25 (about 1300 old SAT). The University of Michigan admitted using race in making admissions decisions—its policy is to admit virtually all qualified applicants who are black, Latino or Native American.

50. Structural Foundations Gratz v. Bollinger (2003) Issue: Did the University of Michigan’s use of racial preferences in undergraduate admissions violate the Equal Protection clause of the Fourteenth Amendment or the Civil Rights Act of 1964? The Rehnquist Court held that the University’s policy did violate both laws. In the Bakke decision the Court took into account the fact that the University of California provided individualized con- sideration to Bakke. The Univ. of Michigan did NOT do so because each minority applicant received an automatic 20-points.