2.7 The labour market

Question 1

What is the labour market

Answer 1

Where workers sell their labour and firms buy the labour. It consists of household’s supply of labour and firms’ demand for labour

Question 2

What are wages in reference to workers and employers

Answer 2

To workers, wages are the reward for working. It is the income for their household
To employers, wages are the cost to firms for that labour.

Question 3

How are wages mainly decided
What two things can have change on wages and how

Answer 3

Wages are mainly determined by the interaction of the demand for labout and supply of labour.
Governments can impact wages by introducing a minimum wage.
Trade unions can also exert influence wages via strikes which decrease supply of labour

Question 4

What are trade unions

Answer 4

Organisation of workers that is active on behalf of its members for example increasing wages and salaries and improving working conditions.

Question 5

What is the role of the labour market

Answer 5

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 for this job.

Question 6

What are the 3 levels of labour markets

Answer 6

Local
National
International

Question 7

Labour markets consist of smaller labour markets, looking for different (3)

Answer 7

• Qualifications
• Skills
• Geographical locations

Question 8

Why does the labour market lack perfect mobility

Answer 8

Labour cannot move freely from job to job. They may not be able to do this because of:
- Lack of skills required
- Unwilling to relocate to different location
- Personal factors like family ties that restrict them from moving
- Information failure- May lack the information about jobs availible

Question 9

How can workers interact with employers (3)

Answer 9

1. The worker can interact directly with their employer
2. Many times, employees and employers are able to set wage rates through the labour market
3. Many workers belong to trade unions which negotiate, with employers on behalf of all employees, terms like wage rate, working conditions and hours.

Question 10

What are on the axes when drawing a supply and demand diagram of the labour market

Answer 10

Y axis- Wage rates
X axis- Quantity of labour

Question 11

What is the supply of labour

Answer 11

The total number of people who are willing and eligible to supply their labour, including the unemployed.

Question 12

What is the demand for labour and
what type of demand is it and give an example

Answer 12

The demand of labour is the willingness and ability of a firm to employ workers at a given wage rate at a certain point in time.
The wage rate is a derived demand from the product that they are producing. e.g. In 2020 when zoom was experiencing increased demand for its services, they hired more workers

Question 13

What 5 factors affect the demand for labour

Answer 13

• State of the economy
• Demand for the good or service
• Wage rates
• Productivity of labour
• Profitability of firms

Question 14

What factors affect the supply of labour

Answer 14

• Wage rate
• Other means of payment offered e.g. vacation days
• Size of the working population
• Education and training
• Pension age

Question 15

When drawing a labour market diagram, what does on the axes

Answer 15

Y- Wage rate
X- Quantity

Question 16

Gross pay

Answer 16

The total amount of money that and employee earns before any deductions are made

Question 17

Income tax

Answer 17

A tax imposed directly on personal income e.g. a persons wages

Question 18

National insurance

Answer 18

A contribution paid by workers and their employees towards the cost of state benefits

Question 19

Net pay

Answer 19

The total amount of money an employee is left with after all deductions are made from their gross income

Question 20

Pension

Answer 20

A fixed amount paid at regular intervals to a (retired) person