3.5 Flashcards
demand for labour
Determined by marginal revenue product (MRP), which is the extra revenue generated by an individual worker. MRP increases initially but declines due to the law of diminishing marginal productivity
derrived demand
The demand for labour is derived from the demand for the product the labour produces. Businesses only want the worker if there is demand for the product.
factors influencing demand for labour
Wage Rates: Higher wages reduce demand for labour.
Demand for the Product: Increased product demand raises labour demand.
Prices of Other Factors of Production: Cheaper machinery reduces labour demand.
Wages in Other Countries: Lower foreign wages can reduce UK labour demand.
Technology: Automation decreases labour demand but increases in tech sectors.
Regulation: High regulation can discourage hiring.
price elasticity of demand for labour
Responsiveness of labour quantity demanded to wage rate changes.
Factors Affecting PED: Elasticity of the product, wage cost proportion, substitutes availability, time.
supply of labour
Ability and willingness of people to work at different wage rates.
factors influencing supply of labour
Wages: Higher wages can increase worker numbers.
Population and Age Distribution: Higher population and working-age distribution increase labour supply.
Non-Monetary Benefits: Job satisfaction, location, perks, work conditions.
Education/Training/Qualification: Higher education increases worker supply.
Trade Unions: Can restrict supply by introducing barriers.
Legislation: Rules like school leaving age, retirement age affect supply.
market failure in labour markets
Immobility: Occupational and geographical immobility lead to excess supply in some areas and excess demand in others.
elasticity of supply
Responsiveness of labour supply to wage rate changes.
Factors Affecting Elasticity: Qualifications, training, availability of labour, time.
Wage Determination in Competitive and Non-Competitive Markets
Perfect Competition: Wages determined by demand and supply; all workers paid the same.
Monopsony: Single buyer of labour reduces wages and employment.
Monopoly: Trade unions can set wages, reducing supply but increasing wages.
Bilateral Monopoly: Monopsony and monopoly interact, wage depends on bargaining strength.
labour market issues
Skills Shortages: Geographic and occupational immobility, skills mismatch.
Young Workers: Recession impacts on lifetime earnings.
Retirement: Rising life expectancy affects government budgets.
Wage Inequality: Growing disparity between top and bottom earners.
Zero-Hour Contracts: Earnings and work schedule uncertainty.
Gig Economy: Short-term contracts raise worker rights concerns.
Migration: Can lower wages but fill skills shortages
government intervention
National Minimum Wage: Reduces poverty, ensures fair wages.
Maximum Wages: Rarely implemented, can cause excess demand.
Public Sector Wage Setting: Government decisions influence wages.
Tackling Immobility: Improve mobility through housing, transport, education, flexible work patterns.
monopsony in labour markets
A market situation where there is only one buyer of labour.
Key Points: In monopsony markets, businesses must raise wages to hire more workers, causing the marginal cost (MC) curve to be above the supply curve. They employ fewer workers at lower wages compared to a perfectly competitive market.
monopoly in labour markets
A market situation where there is only one seller of labour, such as a trade union.
Key Points: Trade unions can set higher wages by restricting labour supply or by setting minimum wages. This can lead to a kinked supply curve and higher wages but may result in fewer jobs.
bilateral monopoly
A market situation with both a monopsonist (single buyer) and a monopoly (single seller).
Key Points: Wage determination depends on the relative bargaining strength of the union and the firm. The equilibrium wage can be higher without reducing employment, making the market more efficient.
skills shortages
When there are not enough workers with the required skills.
Key Points: Skills shortages can be due to occupational and geographical immobility, leading to excess demand for skilled workers in certain areas and industries
youth unemployment
Higher rates of unemployment among young workers.
Key Points: Recessions can lead to lower lifetime earnings for young workers, as firms are less likely to hire new employees during economic downturns.
retirement
The phase when individuals stop working due to age.
Key Points: Rising life expectancy and increasing numbers of retirees strain government budgets, leading to adjustments in retirement age and pension policies.
wage inequality
The disparity in wages between the highest and lowest earners.
Key Points: Wage inequality has increased over time, raising concerns about relative poverty and the need for income redistribution.
gig economy
A labour market characterized by short-term contracts and freelance work.
Key Points: Gig economy workers face challenges related to job security, workers’ rights, and reliable income.
migration
The movement of workers across borders.
Key Points: Migration can fill skills shortages and reduce wages due to increased labour supply but also raises debates about economic impact and labour market integration.
national minimum wage
The minimum amount per hour that workers must be paid by law.
Key Points: It aims to reduce poverty, ensure fair wages, and decrease gender wage gaps. However, it can also lead to job losses and higher business costs.
Impact:
Set Level: Impact depends on whether it is set above or below the current wage level.
Elasticity of Supply and Demand: Job losses depend on the elasticity of labour supply and demand. If both are elastic, there will be large job losses; if inelastic, losses will be small.
maximum wages
A limit on the highest wages that can be paid.
Key Points: Rarely implemented, maximum wages aim to reduce inequality but may cause excess demand and loss of high-quality workers.
tackling immobility
Efforts to improve occupational and geographical mobility of labour.
Key Points: Measures include improving housing supply, transport links, national job advertising, and vocational training to address skills shortages.
arguments for national min wage
Poverty Reduction: Targets the lowest wages, ensuring these people have enough to live on.
Wage Differentials: Reduces male/female wage gaps since women are more likely to take up lower-paid, flexible jobs.
Employee Loyalty: May increase loyalty and reduce labour turnover, recruitment, and training costs. However, this is weak as higher wage offers elsewhere can lead to departures.
Motivated Workforce: Potentially increases workforce motivation and productivity, though not all workers are motivated by money.
Incentive to Work: Prevents the ‘unemployment trap’ where benefits are higher than wages.
Fair Wages: Ensures everyone receives a fair wage, preventing exploitation through underpayment.
