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Economics - Theme 3 > 3:5:1 - Labour Market > Flashcards

3:5:1 - Labour Market Flashcards

1
Q

Where does the Demand for labour come from?

A

Firms

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2
Q

Where does the Demand for labour from firms come from?

A

On the demand for goods and services.

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3
Q

Where does the Supply of Labour come from?

A

Households

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4
Q

What determines the wage rage?

A

He interaction of demand and supply

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5
Q

What are the factors that determine the level of wages paid?

A
  • Level of skills - Price Elasticity of Supply (speed with which an employer may be able to recruit additional workers)
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6
Q

Who demands labour in the Labour Market?

A

Made by Firms

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7
Q

As the demand for the firms’ output increases what happens to the demand for labour?

A

Demand for labour to produce output increases

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8
Q

What happens to demand in times of economic growth?

A

The demand for labour increases and at the same time the level of unemployment decreases.

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9
Q

What happens to the demand for labour when there is Negative Economic Growth?

A

Decrease in the demand for goods and services and therefore a decline in the demand for labour, resulting in greater unemployment

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10
Q

As workers become more productive what happens to the demand for labour?

A

Increases

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11
Q

As workers become more productive what happens to wages?

A

Workers have a greater ability to demand higher wages

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12
Q

What can Firms substitute labour for?

A

Capital

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13
Q

What happens to labour if the price of capital increases?

A

Firms employ more labour as capital becomes more expensive

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14
Q

What would happen to the demand for labour if labour became more expensive?

A

The demand for labour would decrease

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15
Q

Why are some economies capital intensive?

A

Because labour is highly skilled and expensive

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16
Q

What kind of economies are usually capital-intensive?

A

Developed economies

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17
Q

Why do developing economies tend to use labour instead of capital-intensive economies?

A

Because labour is abundant and lacking in skills, it is cheaper employ workers than it is to automate the process.

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18
Q

What does the Supply of Labour Depend on? (Factors affecting the supply of labour)

A
  • Wage Rate - Benefits with Working in that certain place (quality of the office, colleges and general working environment) - Level of taxation and welfare provision
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19
Q

Work is seen to be a…

A

Inferior good

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20
Q

Because work is an inferior good what kind of income Elasticity of Demand does it have?

A

Negative income Elasticity of Demand.

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21
Q

Because labour has a negative income Elasticity of Demand, what will happen to the supply of labour if income rises?

A

Supply of labour will increase, but after a certain level it will fall as workers substitute work for leisure

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22
Q

How is there Market Failure in the labour market?

A
  • Geographical Immobility of Labour - Occupational Immobility of Labour
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23
Q

What is Geographical Immobility?

A

When people cannot elevate to another part of the country to take up job oppertunities

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24
Q

Why does Geographical Immobility of Labour Exist?

A

Due to differentials in house prices or a desire not to relocate and break up family ties.

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25
Q

What is Occupational Immobility?

A

When workers are unable to change jobs or take up new opportunities die to a lack of skills or training.

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26
Q

What causes the price for labour, in other words, the equilibrium wage rate?

A

The interaction of demand and supply

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27
Q

What will happen to the supply of wages are too high?

A

Supply of labour will be greater than he demand for labour

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28
Q

What is excess supply known as on a labour demand and supply diagram?

A

Unemployment

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29
Q

What happens if there is excess supply in a competitive labour market?

A

Workers will compete for the available employment opportunities and therefore will compete wages down to the equilibrium.

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30
Q

What will happen to demand, if wages are too low?

A

Demand for labour will be high

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31
Q

What happens to the supply of labour, if the wages are too low?

A

Supply of labour will be low.

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32
Q

What does a low labour supply and high labour demand equal?

A

A labour shortage

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33
Q

Why do workers not work at a low wage rate?

A

Because they are not being paid enough to be compensated with the opportunity costs associated with working.

34
Q

Top tip - how can the Wage Rate be determined?

A

Can be determined in the context of demand and supply

35
Q

How have the UK government tried to reduce the level of youth unemployment?

A

By increasing young people’s skills and training, Such as: - Apprenticeships - Universities Are all designed to reduce the levels of occupational Immobility.

36
Q

When did the UK see the fastest ever increase in unemployment?

A

In the 2008 economics crash

37
Q

What is the National minimum wage?

A

Is the legally enforced minimum pay for employees who are over the school leaving age.

38
Q

When was the minimum wage introduced?

A

1999

39
Q

What is meant by the Elasticity of Demand for Labour?

A

Refers to the responsiveness of demand to changes in the wage rate.

40
Q

What is meant if demand in the labour market is price (Meaning - Wages / Price of Labour) inelastic?

A

If wages were to increase, the impact on demand would be limited.

41
Q

In what industries is demand price inelastic for labour exist?

A

In industries where workers are skilled and cannot be easily replaced with capital and equipment.

42
Q

What is meant by demand for labour being price elastic?

A

An increase in wages is likely to result in a large decrease in the demand for labour, with workers often being replaced by capital equipment.

43
Q

What does the wage Elasticity depend on?

A
  • Cost of labour relative to the overall cost of running the business - Time it takes to locate alternative manufacturing process - Time Period of being referee too
44
Q

In the short term, is demand wage elastic or Inelastic? Why?

A
  • Demand tends to be wage inelastic - Because in the short term it is usually hard to replace labour
45
Q

In the long term, is demand wage elastic or Inelastic? Why?

A
  • Demand tends to be wage elastic - Because in the long term it is easier to replace labour with machinery
46
Q

What does the Elasticity of Supply refer to?

A

Refers to the responsiveness of workers to changes in wage rate.

47
Q

What is meant by Supply being Price (Wage/Price of Labour) Inelastic?

A

If wages were to increase, there would be little impact on supply.

48
Q

If a particular job requires a number of years’ training and specific skills, what is the price (wage) Elasticity of Supply?

A

Is relatively inelastic

49
Q

If the demand increases for jobs, what happens to the wages?

A

Wages increase

50
Q

If the demand for a job increases, and wages increase also, what happens to the supply?

A

In the long run, additional training will mean that surgeons become relatively abundant, making supply relatively wage elastic

51
Q

What does being in the Global labour market for an economy mean?

A

Countries can recruit from abroad an use migration to increase the supply of workers, helping to plug the skills shortage and keep wages from increasing.

52
Q

Is the Labour Market in reality Perfectly or Imperfectly Competitive?

A

Imperfectly Competitive

53
Q

Why are Labour Markets Imperfectly Competitive?

A

This is because workers or firms usually have the power to set and influence wages and therefore wages may be set to levels different than anticipated by Marginal Revenue Product (MRP) theory.

54
Q

What is the Marginal Revenue Product Theory?

A

This is the extra revenue a firm gains from employing an extra worker.

55
Q

What do Imperfections in the Labour Market cause?

A

Imperfections in the labour market cause wages to differ from a competitive equilibrium.

56
Q

What are different imperfections in the Labour Market?

A
  • Monopsony - Trade unions - Discrimination - Difficult to measure productivity - Firms, not profit maximisers - Geographical immobiliities - Occupational immobilities - Poor information
57
Q

Imperfections in the Labour Market - Monopsony

A

Monopsony occurs when there is just one buyer of labour in a market. This gives the firm market power in employing workers. The monopsony can set (lower) wages and limit the quantity of workers.

58
Q

Imperfections in the Labour Market - Trade Unions

A

Under certain conditions, Trades unions can bargain for wages above the competitive equilibrium This can be achieved by restricting the supply of labour (e.g. closed shops) or threatening to go on strike.

59
Q

Under what conditions are Trade Unions useful?

A
  • They operate in an industry with a Monopsonistic employer - They help to increased productivity by bringing in new working practices - Demand for labour is inelastic - Efficiency wage theories – when higher wages lead to higher productivity.
60
Q

Imperfections in the Labour Market - Discrimination

A

Firms may not be rational but pay some workers different wages on the grounds of age, race or gender

61
Q

Imperfections in the Labour Market - Difficult To Measure Productivity

A

The theory of Marginal Revenue Product (MRP) depends on the Marginal Physical Product (MPP) [Productivity of worker] however this is difficult to measure because in the service industry it is difficult to measure the productivity of a worker.

62
Q

Imperfections in the Labour Market - Firms May be non-Profit Maximisers.

A

If demand for a particular product falls, Marginal Revenue Product suggests that wages are likely to fall, however some businesses may continue to pay the same wages.

63
Q

Imperfections in the Labour Market - Geographical Differences

A

Wages tend to be lower in the North of the UK because of less demand, higher unemployment and more elastic supply, whereas it is the opposite in the South. Workers could move but may not due to Geographical Immobility

64
Q

Imperfections in the Labour Market - Occupational Immobilities

A
  • Involves having adequate skills for the labour market - Some worked may not have transferable skills
65
Q

Imperfections in the Labour Market - Imperfect Information

A

Workers or firms may suffer from poor information. E.g. workers may be unaware of better-paid jobs elsewhere. Poor information is one factor that enables firms to have monopsony power.

66
Q

Definition of a Monopsony.

A
  • A monopsony occurs when a firm has market power in employing factors of production (e.g. labour). - A monopsony means there is one buyer (form looking for labour) and many sellers (people looking for work).
67
Q

How does a Monopsony Work?

A

If there is only one main employer of labour, then they have market power in setting wages and choosing how many workers to employ.

68
Q

Problems with Monopsonies in Labour Markets.

A
  • Monopsony can lead to lower wages for workers. This increases inequality in society. - Workers are paid less than their marginal revenue product. - Firms with monopsony power often have a degree of monopoly selling power. This enables them to make high profits at the expense of consumers and workers. - Firms with monopsony power may also care less about working conditions because workers don’t have many alternatives to the main firm.
69
Q

Is demand for labour derived?

A

Yes - it is derived from the demand of the product the worker is producing

70
Q

What is Marginal Physical Product?

A

This is the extra output that an additional worker produces

71
Q

What does the Demand for Labour depend on?

A
  • The productivity of labour (MPP) - The demand for the good – which determines the price and marginal revenue of last good sold. - The wage rate, strictly this is the MC of labour.
72
Q

What happens to wages if there is only one main employer in the labour market?

A
73
Q

Monopsony Diagram, and explain how the monopsony diagram works.

A
  • In a competitive labour market, the equilibrium will be where D=S at Q1, W1
  • However, a monopsony can pay lower wages (W2) and employ fewer works (Q2)
74
Q
A
75
Q

What is the link between the Marginal Cost of Labour and Wages?

A
76
Q

How do Monopsonies maximise profits when employing workers?

A
77
Q

Minimum wages in a Monopsony?

A

In a monopsony, a minimum wage can increase wages without causing unemployment

78
Q

Graph on a Minimum wage in a Monopsony.

A
79
Q

Monopsonies in the Real World

A
80
Q

Problems of a Monopsony in the Labour Market.

A
  • Monopsony can lead to lower wages for workers, this increases inequality in society
  • Wrokers are paid less than their marginal revenue product
  • Monopsonies are normally monopolies in the market and can charge higher prices to consumers and workers
  • Firms with monopsony power often care less about working conditions because workers don’t have many alternatives to the main firm.

Economics - Theme 3 (8 decks)

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