3.5 Flashcards
1
Q
What factors influence the demand for labour?
A
- It shows how many workers an employer is willing and able to hire at a given wage rate in a given time period.
- There is normally an inverse relationship between demand for labour and the wage rate.
- If the wage rate is high, then it becomes costly for a business to hire extra employees.
- When wages are lower, labour becomes relatively cheaper than capital. A fall in the wage rate might therefore create a substitution effect and lead to an expansion in labour demand.
2
Q
What causes a shift in the demand curve for labour?
A
- A rise in consumer demand which means that a business needs to take on more workers
- A change in the price of the product that labour is making which affects the revenue of the employer
- An increase in the productivity of labour which makers labour more cost efficient than capital.
- An employment subsidy or tax incentive which cuts costs and allows a business to employ more workers.
- A change in the price of new capital equipment e.g. robots replacing labour.
3
Q
What is derived demand for labour?
A
- Its the demand for a factor of production used to produce another good or service
- When the economy is growing strongly, many businesses will be looking to hire extra workers to supply increased output.
- During a recession or a prolonged economic slowdown, demand for labour tends to fall, causing a rise in cyclical unemployment.
4
Q
Give an example of an industry where employment is cyclical
A
- The construction industry, when demand for new building is growing quickly, there will be an expansion of demand for many different types of jobs within the industry.
- When in a cyclical downturn, construction employment is likely to fall.
5
Q
What is the elasticity of labour demand?
A
- Measures the responsiveness of demand for labour after a change in the real wage rate.
6
Q
What does the elasticity of labour demand depend on?
A
- Labour costs as a % of total costs- When labour expenses are a high % of total costs, then labour demand is more wage elastic.
- Ease and cost of factor substitution- demand is more elastic when a firm can substitute easily and cheaply between labour and capital inputs.
- Price elasticity of demand for the final product- this determines whether a firm can pass on higher labour costs to consumers in higher prices. If demand is inelastic, higher costs can be passed on.
- Time period- in the LR, it is easier for firms to switch factor inputs e.g. increasing capital to replace labour
7
Q
What is the labour supply?
A
The number of hours that people are willing and able to supply at a given wage rate.
8
Q
Explain the labour supply curve in relation to wage rate and employment.
A
- The labour supply curve for any industry or occupation will be upwards sloping
- As wage rises, other workers enter this industry attracted by the incentive of higher pay.
- The extent to which a rise in the prevailing wage or salary in an occupation leads to an expansion in the supply of labour depends on the elasticity of labour supply.
9
Q
What factors cause a shift in the supply of labour to an occupation/industry ?
A
- Real wage rate on offer in the industry itself plus extra pay e.g. overtime
- Wages on offer in substitute occupations e.g. increase in the earnings for plumbers.
- Barriers to entry- Artificial limits to an industry’s labour supply e.g. qualifications needed can restrict supply and increase av. wages compared to other jobs.
- Improvements in the occupational mobility of labour and stock of human capital e.g. as a result of expansion of apprenticeships and other types of work experience.
- Non-monetary characteristics of specific jobs e.g. job risk, need to work antisocial hours, job security
- Net migration of labour- inward net migration expands the active labour supply in many occupations e.g. in the NHS
- Demographic factors affecting overall size of the working population
- Peoples preferences between work/leisure and desire for work flexibility.
10
Q
What are other non-wage factors that affect the supply of labour to an occupation?
A
- Working conditions
- amount of leisure time
- Facilities available at work
- ability to work flexible hours at different times
- opportunities for career progression/ travel
- extent of autonomy given to people in their jobs.
11
Q
What factors affect the elasticity of supply of labour to an occupation/industry?
A
- Nature of skills and qualifications required to work in an industry. e.g. specific education makes supply inelastic.
- Vocational nature of work; in jobs such as nursing, people are less sensitive to changes in wages when deciding whether to work and how many hours to work
- Time period; In the SR, supply curve for labour to a job tends to be relatively inelastic. It takes time for people to respond to changes in relative wages and earnings, especially if people need to be retrained. When labour is geographically and occupationally mobile, then labour supply will tend to be relatively elastic even in the SR.
12
Q
What are some causes of market failure in the labour market?
A
- Geographical immobility
- Occupational immobility
- Employer discrimination
- monopsony employers
- disincentives to work
- training gaps
13
Q
Why does geographical immobility exist and persist?
A
- family and social ties- older people are more reluctant to move
- financial costs involved in moving home inc. cost of selling and removal expenses
- regional variations in house prices leading to a shortage of affordable housing in many areas.
- high costs of renting a suitable property
- differences in the cost of living between regions and countries and variations in tax and pension systems
- Migration controls
- cultural and language barriers to living and working overseas
- a default behavioural instinct which is a dislike to of change including your place of employment.
- High transport costs or very slow travel, between one region and another, preventing people from living in one place and commuting to another
14
Q
What are the key causes of occupational immobility?
A
- Skills gaps; new jobs may require different skills from those that unemployed workers can offer
- Training gaps; Unemployed workers may not have access to affordable training schemes that would allow them to improve their human capital and improve employability
- experience gaps; the long term structurally unemployed often have gaps in their CVs that make them less attractive to employers
- confidence and motivation; the longer someone is unemployed, the harder it is to find fresh work. Skills decline and so too does confidence and motivation to look for a job.
- Discrimination; this can be in terms of age, gender or race ect. Whilst discrimination is illegal in the UK, it may still be an important cause of occupational immobility.
15
Q
How does the labour market fail as a result of immobility?
A
- It is a cause of structural unemployment and economic vulnerability. Occupation immobility is a barrier to people finding work. Towns with low mobility more exposed to external economic shocks.
- It is a cause of persistent relative poverty. LT UE damages life earnings. Areas with low mobility are more likely to supper economic deprivation leading to a fall in incomes/ higher levels of debt.
- Loss of economic efficiency and social welfare. Immobility stops scarce resources from being used optimally- leading to a loss of potential output. Social costs from increased UE and from rising relative poverty.
16
Q
What are the characteristics of
a monopsony employer?
A
- It occurs when there is a sole or a dominant employer in a labour market.
- This means that the employer has buying power over their potential employees.
- This gives them wage setting powers
- But the wage they pay will not necessarily be equal for the MRPL
- Monopsony is a potential cause of labour market failure because a a monopsonist may pay lower wages, and employ fewer people than if the labour market was more competitive.
17
Q
What is the poverty trap?
A
- The trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the effects of tax and benefits system.
- Working more hours means benefits are cut
- Earning extra income also means that people now pay national insurance and income taxes
- The overall marginal rate of tax may be high
18
Q
What is the unemployment trap?
A
- When the prospects of the loss of UE benefits dissuades those without work from taking a new job- this creates a disincentives problem in the labour market.
19
Q
What is the equilibrium wage rate?
A
- It is at he intersection of the supply and demand for labour.
- Employees are hired up to the point where the extra cost of hiring an employee is equal to the extra sales revenue from selling their output
20
Q
What are the main causes for wage differentials in wages between occupations?
A
- Compensating wage differentials; these might be a reward for risk taking, working in poor conditions and during unsocial hours
- Reward for human capital; differentials compensate workers for costs of human capital acquisition.
- Different skill levels- market demand for skilled labour grows more quickly than for semi-skilled workers.
- Differences in labour productivity and revenue creation; workers whose efficiency is high and generate revenue for a firm will often have higher pay.
- Trade unions who might use their collective bargaining power to achieve a markup on wages compared to non-union members.
- Artificial barriers to labour supply e.g. professional exams, migration controls
- Employer discrimination- a factor that cannot be ignored despite many years of equal pay legislation in place.
21
Q
What is an example of current labour market issues?
A
Gig economy;
- Fragmented work where someone is given a task for a certain amount of time. People provide a service nearly always through a digital platform.
- Short term contracts and freelance work
- e.g. Uber and amazon
- companies hire contingent workers i.e. provisional employees who work for the organisation on a non-permanent basis.
- Many employers now see short term contract work as a way of de-risking in an age of economic uncertainty.
22
Q
What are the benefits of the Gig economy for businesses?
A
- reduces fixed costs- lower payroll expenses
- Reduced investment e.g. Uber drivers have their own vehicles
- Flexibility in managing hours to expected demand for their products
23
Q
What are the benefits of the Gig economy for workers?
A
- Flexible hours/ control over when to work
- Ability to work from home
- a common way for people to earn extra income
- less risk of getting stuck in routine jobs
24
Q
What are the drawbacks of the Gig economy for workers?
A
- Doubts over the true flexibility of hours offered by employers
- Lack of paid vacation/sick leave/ employment rights
- Job and income uncertainty make it harder to get a mortgage- many people are in precarious jobs
- inadequate investment in worker training
- Workers bare more the risk in their job- often incomes are lower for the self employed.
25
Q
What are the wider downsides of the gig economy?
A
- Shrinking of the tax base will hit revs
- Reduction in road safety/ more accidents
- are platformed businesses creating high quality jobs?
26
Q
What are the possible microeconomic effects of an ageing population?
A
- Changing patterns of consumer demand in markets/ affecting profits of businesses in particular sectors
- Impact on housing markets e.g. if people can live in their own houses for longer
- Impact on labour market for different jobs- labour demand and labour supply consequences to consider
27
Q
What are the possible macroeconomic effects of an ageing pop?
A
- Impact on gov. welfare spending and future tax revenues e.g. NHS care
- Impact on the rate of growth of productivity and LT GDP growth
- Impact on UK competitiveness if the median age continues to rise rapidly.
28
Q
What are the microeconomic effects of robotics?
A
- Impact on productivity, costs and profits of firms/industries at cutting edge
- Impact on demand for and supply of labour in specific jobs and the real wages paid
- Impact on consumer welfare e.g. through lower prices, higher real disposable incomes and economic wellbeing.
29
Q
What are the possible macroeconomic effects of robotics?
A
- Effects on employment and UE from extensive capital-labour substitution.
- Effects on competitiveness and exports and changing patterns of trade
- effects on gov. finances e.g. tax revs from employment fall
30
Q
What are the possible microeconomic effects of a fall in inward migration?
A
- Shortages of skilled labour e.g. NHS
- Impact on demand for and prices of properties to buy and rent.
- Effects on dynamic efficiency e.g. with a brain drain of entrepreneurs.
31
Q
What are the possible macroeconomic effects of a fall in labour migration?
A
- Fall in net outflow of remittances- impact on UK current account of BoP.
- Impact on employment and underemployment if AS of labour contracts.
- Consequences for economic growth and inflation e.g. from slower growth of AD+ possible fall in LRAS.
32
Q
What is the role of trade unions in the labour market?
A
- Trade unions use collective bargaining with employers to protect their members
- Most unions belong to the Trade Union Congress
- 2022- 24% of UK workers were part of a trade union.
33
Q
What factors have caused the long-term decline in trade union membership?
A
- Impact of legislation that has reduced/ removed many of their powers to engage in industrial action
- Rise in flexible labour markets e.g. with short term contracts, 0 hour contracts, part time working and self-employment
- De-industrialisation; there are fewer jobs in industries where unions tended to be stronger i.e. less jobs in heavy manufacturing and many more in services
- Impact of globalisation which has reduced the bargaining power of employees.
34
Q
What are the key roles of trade unions?
A
- Protecting and improving the real living standards/ real wages of their members
- Protecting workers against unfair dismissal
- Promoting improvements in working conditions
- promoting better workplace training and education i.e. the accumulation of human capital
- Protection of pension rights for union members.
35
Q
Analyse the impact of trade unions on wages and employment
A
- Trade unions may bid for employers to pay a premium wage above the normal competitive market wage.
- This might lead to an excess supply of labour and a contraction of total employment
- Unions will have more success in raising wages for members if demand for labour is relatively wage inelastic
- Unions are more influential when they represent a high % of all workers in a given industry/ occupation e.g. education and healthcare
- Pay might also rise if unions and employers agree a pay deal based on better productivity.
36
Q
Evaluate the impact of trade unions on the labour market.
A
- LT decline in union membership- reflects the growing flexibility of the UK labour market including 0 hour contracts + decline in heavy industry and shrinking public sector
- Trade unions influence on pay depends in part on trade union density in an industry and also the credible threat power they have with possible industrial action e.g. teachers
- New unionism focuses less on wage bargaining power and more on protecting employment, pension rights, health and safety ect.
- trade unions may negotiate a combined pay and productivity deal with employers.
37
Q
What are the arguments in favour of 0 hours?
A
- Supporters of flexible employment contracts argue that they are good for businesses where demand and production is highly seasonal- e.g. tourism and catering. Employing people on 0 hours may allow businesses to better control their costs.
- 0 hours might also benefit some people who want a high level of flexibility when choosing when they want to work.
38
Q
What are the arguments against 0 hours?
A
- they have contributed to an increase in “in-work poverty” where people are not ale to work enough hours each week, often at relatively low wage rates, to earn sufficient to avoid remaining in poverty and reliant on top-up welfare benefits.
- Uncertain incomes also make it harder for people to be given loans, mortgages and phone contracts.
39
Q
What are the causes of the persistent gender pay gap?
A
- Breaks from the labour market;
- When women take maternity leave to raise a family, it is harder to achieve a promotion when re-entering the job market.
- Age at which many women take a break from the labour force is often the point when careers take off and wages rise at a fast pace. - Access to education; in many lower and middle-income countries, opportunities for women to take qualifications and gain experience is limited, this is affected by social norms and high fertility rates.
- Patterns of employment in developed countries;
- Women are disproportionately represented in part time work
- Many females are clustered in service jobs that pay less e.g. catering and cleaning
- Many women work in vocations where wages are relatively lower. - Gender pay gap remains affected by continued employer discrimination
- Increased female participation rates in economies has increased the supply of labour which may have contributed to lower wage rates.
40
Q
Give examples of government intervention to improve labour mobility and incentives.
A
- Providing access to better quality training within firms- the Workplace Levy
- Better funding for technical/ vocational education; Tlevels
- Improving the affordability and reliability of transportation- e.g. using subsidies for bus and rail travel
- Addressing chronic housing shortages/ expensive rents- max rents
- Creating a bigger difference between pay/earnings in work and welfare benefits for those without a job
- Lowering the burden of direct taxes especially for families on low incomes to encourage work incentives
- Raising the level of statutory national minimum wage
- Providing tax-free childcare for all children age 3 and over.
41
Q
What are some reasons that the minimum wage should be increased?
A
- Equity justification; every job should give fair pay linked with skills of an employee
- poverty reduction; a minimum wage boosts the take home pay of thousands of lower paid workers
- training; it encourages firms to skill up their workers and can lead to higher labour productivity.
- Incentives; will improve incentives for people to look for paid work rather than stay on benefits
- Anti-discrimination; a way of tackling discrimination of low paid younger workers.
42
Q
What are the arguments against a rise the the national minimum wage?
A
- Jobs; a higher minimum wage adds to the costs of employing workers and might cause higher UE
- Small businesses; many smaller businesses struggle to make a profit- risk of a rise in business closures
- training; there are better incentives for training that a minimum wage e.g. tax relief on apprenticeships
- Competitiveness; might make many UK businesses less competitive in some global markets
- inflation; higher labour costs might cause a rise in inflation which lowers real incomes of households.
43
Q
What are the arguments for executive pay ceilings?
A
- Equity and fairness;
- ratio of pay of executives to ordinary workers has grown
- damages social cohesion when the super-rich see their pay and earning soar
- shareholders are reluctant to impose controls on pay at the AGM, many are passive investors - Bonus culture encourages ST decision making rather than focusing on the LT strategic direction of a business.
- Huge levels of executive pay contributes to growing income and wealth inequality in society.
44
Q
What are the arguments against executive pay ceilings?
A
- It might prevent talented executives moving to the UK- high rate of pay is a price signal within the market
- Might lead to businesses relocating overseas to countries with lower top-rate taxes
- Capping pay and bonuses may lead to rewarding executives in other ways e.g. using complex share options
- Introducing higher marginal tax rates on top executive pay might be a better option than capping it.
