2.7 The Labour Market Flashcards
What is the labour market?
It consists of the supply of labour from households and the demand for labour by firms. In addition to supply and demand, the price of labour (wages) is influenced by governments and trade unions.
What is the role of the labour market?
It enables workers who are willing and able to sell their labour to meet employers who are willing and able to offer them a job. This determines the wage rate for this work.
What three main labour markets exist?
Local, national and international.
What might prevent the perfect operation of the labour market?
- Lack of skills
- Unable/unwilling to relocate
- Information failure
- Personal factors (family/preference)
What is meant by the interaction of workers and employers?
Individual workers can deal directly with their employer to discuss pay for example.
The trade union will interact with employers on behalf of its members (collective bargaining) to establish wages and working conditions.
What is meant by the supply of labour?
This refers to those who are both willing and able to work. This does not account for students, people who are retired or sick etc.
What are factors that affect the supply of labour?
- Wage rate - the higher it is, the more people willing to work
- Non-monetary factors. Eg: better working conditions
- Education and training - increases supply of skilled labour
- Size of working population
- Barriers to entry. Eg: trade unions, qualifications
- Other monetary payments
What is meant by the demand for labour?
This is derived demand as it depends on the good/service the labour helps to produce.
What factors affect the demand for labour?
- Demand for products
- Wage Rates - inverse relationship between demand for labour and wages
- Profits of firms - if this increases, firms can expand and hire more
- Stare of the economy. A gorwing economy requires workers
- Real wages: a fall in this will cause labour to replace capital
- Productivity of labour
How are wages determined through supply and demand if demand for labour increases?
Increased demand for labour will shift the curve to the right, leading to an increase in wages. This also causes the equilibrium supply of labour to rise.
How are wages determined through supply and demand if supply of labour increases?
If supply of labour increases, the curve shifts to the right. This leads to a fall in wages and an increase in demand for labour too.
How can price elasticity affect the determination of wages?
If supply of labour is inelastic, this means that there are limited people who can fulfil this role.
What is gross pay?
The amount of money an
employee actually earns before any deductions are made.
What is net pay?
Also known as ‘take-home pay’. It is the actual amount of money an employee is left with after all deductions have been made from gross pay.
What are some deductions from your gross pay?
- Income tax
- National insurance
- Pension contributions
