2.7 The labour market

Question 1

What does the labour market consist of?

Answer 1

Consists of the supply of labour by households and the demand for labour by firms

Question 2

What is a labour market?

Answer 2

Where workers sell their labour and employers buy the labour

Question 3

What is a trade union?

Answer 3

An organisation of workers that is active on behalf of its members

Question 4

What is the role of the labour market?

Answer 4

Is to enable workers who are willing and able to sell their labour to meet employers who are willing and able to offer them a job, and to determine the wage rate or salary for this work.

Question 5

What is a salary?

Answer 5

A salary is a yearly wage divided equally into 12 months.

Question 6

What is meant by collective bargaining?

Answer 6

When trade unions negotiate better conditions with the employer on behalf of the employees

Question 7

What does the demand for labour depend on?

Answer 7

Depends on the demand for the product that labour helps produce

Question 8

What are the factors affecting demand for labour?

Answer 8

• The sate of the economy: if the economy is growing more labour will be demanded
• increased demand: if particular markets in the economy are growing fast then demand for labour in these areas will rise sharply.
• wage rates: the downward slope of the demand curve shows there is an inverse relationship between demand for labour and wage rate
• real wages: a fall in real wage rates may persuade employers to employ more people and/or use labour instead of capital.
• productivity of labour: if the productivity of labour rises, labour may become more cheaper then capital, leading to more people being employed.
• Profitability of firms: firms that are making large profits are likely to expand and therefore higher more people

Question 9

What are the factors effecting the supply of labour?

Answer 9

• wage rate: the higher the wages offered the more labour is likely to be supplied
• other money payments: if there are opportunities to boost earnings through overtime payments or productivity related pay schemes, it is likely to increase the supply
• Size of the working population: this is affected by retirement and school leaving ages, migration and numbers going to further education/ university. The gradual rise of the retirement age will mean there are more people available to work
• non monetary factors: these include working conditions, opportunities for promotion and job security etc.
• Barriers to entry: these may consist of necessary qualifications as in the cases of doctors, lawyers
• Education and training: this will increase the number of skilled workers available

Question 10

What is meant by gross pay?

Answer 10

The amount of money that an employee actually earns before any deductions are made

Question 11

What is meant by net pay?

Answer 11

It is the actual amount of money that an employee has to spend or save after all deductions have been made. These deductions include income tax, national insurance, and pension contributions

Question 12

How do you calculate net pay?

Answer 12

Net pay= gross pay- deductions

Question 13

What is the price of labour?

Answer 13

The wage rate