3.5 Flashcards
Supply of labour
How many workers are willing and able to work at any given wage rate
Factors influencing the demand for labour
Demand for product, more demand = more workers needed to suffice output
Prices of others factors of production
Technology advancements e.g AI taking jobs
Productivity of workers
Wage rate- as wage rate increases demand for labour contracts
what is the labour supply
Number of hours people are willing and able to supply at a given wage rate at a given wage rate at a given period of time
Why labour supply curve is backwards bending
Upwards:
Positive income effect- higher wages incentivise people to work mode
Substitution effect- opportunity cost of leisure has increased
Backwards:
Negative income effect- people reach target income and decide to stop working
Negative income effect overpowers the other effects causing it too bend backwards
Reservation wage
Lowest wage people are willing to work at
Why is labour supply curve upwards sloping
As wage rises other workers enter this industry attracted by the incentive of higher wages
Factors influencing the supply of labour
Wages in substitute occupations
How skilled you must be to work ( doctor vs binman)
Non monetary benefits
Occupational mobility of labour
School leaving age
Net migration of labour
Demographic factors (geographical mobility)
Definition of Elasticity of labour supply
Extent to which labour supply responds to a change in wage rate in a given time period
Elasticity in skilled vs unskilled environments
Highly skilled - inelastic as you cannot train doctors overnight
Low skilled - elastic because anyone can work at McDonalds
Determinants of elasticity of supply of labour
Nature of skills + qualifications required to work in a industry, meaning lengthy training time
Vocational nature of work- less sensitive to a wage change
Time period- everything is more elastic in the long run
Level of unemployment
Causes of Outwards shift in supply of labour
Wages in substitute industries being lower Demographic, maternity pay increase Non monetary rewards Improvements in working condition More transport links
Causes of Inwards shift of supply in labour market
Wages in other countries increasing ( doctors move to USA)
barriers to entry in market such as needing lots of training ( cannot make doctor overnight)
Demographic factors financial jobs available in London not available to workers in the north
Income effect
positive- workers are incentivised to work more due to higher wages
negative- Workers receive a certain level of income and believe that is enough, they decide at that point their leisure time is more important
Substitution effect
As wage increases the opportunity cost of not working becomes more costly meaning you work more
Difference between positive and negative income effect
Positive , higher wages = more desire to work
Negative , people reach desired income and decide to work less
How is wage effected due to a shift in demand when elasticity of supply is low
Large change
Due to supply being inelastic ( maybe due to highly skilled industry) wage must be increased dramatically to tempt highly skilled workers into the market
How can government intervene in product markets ( regulation)
Quality standards Self regulation Performance targets Subsides Price control Profit control
How can government intervene in product markets ( competition)
Break up the monopoly
Lower barriers to entry
Deregulation
Type of intervention and examples
Price regulation - energy price caps
Profit regulation- pharmaceutical example
Quality standards- water
Performance targets- incentives to be more productive
Case for higher minimum wage
Anti discrimination
Higher incentives to work
More highly trained workforce
Poverty reduction
Case for not increasing the minimum wage
Additional cost for firms may lead them to employ less people ( unemployment)
Smaller businesses may struggle to make a profit
More benefit to spend extra money on more training than paying higher wages
Less competitive in global markets as profits cannot be used for innovation
Inflation which could lead to lower real incomes
Factors effecting the PED of labour
Directly correlates to PED for the product, if good is elastic then so is the labour
Proportion of wages to the total cost of production
Substitutes such as machinery or labour in other countries then demand will be elastic
Time, everything is more elastic over time ( machinery can be built if wage rate increases)
Market failure in labour supply
Geographical immobility - workers find it difficult to move their families to places where there is jobs
Occupational immobility- workers can’t move jobs due to lack of transferable skills
Leads to excess supply or demand of labour in specific areas
How are wages decided in perfectly competitive markets
Purely on supply and demand
All wages in the same industry would be the same
Liverpool Portsmouth waiter example
