2.7 The labour market

Question 1

What does the term ‘labour market’ mean?

Answer 1

Where workers sell their labour and employers buy the labour: it consists of households’ supply of labour and the firms’ demand for labour

Question 2

What does the term ‘trade union’ mean?

Answer 2

An organisation of workers that is active on behalf of its members, e.g. increasing wages and salaries and improving work conditions

Question 3

What does the term ‘supply of labour’ mean?

Answer 3

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

Question 4

What factors affect the demand for labour?

Answer 4

• The state of the economy
• Increased demand for a product
• Wage rates
• Real wages
• Productivity of labour
• Profitability of firms

Question 5

What factors affect the supply of labour?

Answer 5

• Wage rate
• Other payment methods (e.g. overtime payments & productivity related pay schemes)
• Size of the working population
• Non-monetary factors (e.g. working conditions & job security)
• Barriers to entry (e.g. immobility)
• Education and training

Question 6

What does the term ‘gross pay’ mean?

Answer 6

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

Question 7

What does the term ‘net pay’ mean?

Answer 7

The amount of money an employee is left with after deductions are made from the gross income.

Question 8

What does the term ‘income tax’ mean?

Answer 8

A tax levied directly on personal income, e.g. a tax on a persons’ wage.

Question 9

What does the term ‘national insurance’ mean?

Answer 9

A contribution paid by workers and their employers, towards the cost of state benefits.

Question 10

What does the term ‘pension contributions’ mean?

Answer 10

Payments made to a pension fund. If you are employed, contributions are usually from three sources - the employee, the employer and the government.