3.5 Flashcards
Factors influencing demand for labour
WILL DANNY SELL RED PAPER NOTES (WDSPN)
- Wage rate = the price for labour, Increased wages= contraction in demand= less ppl employed
- Demand for product , due to derived demand, if there is no demand for a good,firms wont employ due to no profit incentive
- Substitutes for labour, if labour can be replaced by cheaper capital = demand shifts left or improved technology can replace workers
- Regulation, if high then it can discourage firms to employ due to increased costs
- Profitability of firms, more profit = can afford more labour
- Numer of firms in market- if firm is natural monopoly or single buyer, demand could be lower compared to if there many buyers
What is derived demand
- Derived demand is where demand for one good is linked to the demand for a related good
- Labour = derived demand
- Demand for labour comes from the demand for what it produces eg demand for mechanics is derived from demand for cars
What is PED for labour
PED for labour measures the responsiveness of quantity demanded for labour relative to the wage rate
If elastic?
- If a good is elastic and wages rise, causing prices to rise = fall in output = reduce number of workers to increase profits
Factors affecting PED in labour markets
PASIFIC STANDARD TIME (PST)
- Proportion of wages to total cost of production, if wages are a significant proportion of cost= increased costs = large fall in labour demand = elastic
- Many substitutes - machines or labour from other countries = elastic.
> High skilled labour = inelastic due to not being easy to replace than low skilled - Time= LR is elastic due to tech/machinery develop = easy replacement of workers.In SR is inelastic because firms cannot quickly substitute labour with capital or adjust their workforce as easily.
Supply of labour
ability and willingness of people to make themselves available to work at different wage rates
Demand for labour
quantity of labour employers would wish to hire at each possible wage rate
Factors that influence the supply of labour
MIGHT TAKE LONGER AND WE’LL PROBABLY TAKE BREAKS (MTLAWPTB)
- Migration, migrants are usually of working age = increased supply
> migrants may work for lower wages due to coming from economies with lower average wage than UK min wage - Trade unions- increase supply because workers know their rights, could decrease supply due to firms being able to limit workers right to strike
- Leisure time- substitutes of work= makes part time more attractive
- Advantages of work= holiday entitlement and promotion = increased supply
- Wages , increase wage= increases qty of labour = supply extends
- Taxes, high tax = disincentivises work
- Benefits, high benefits = incentive to stay home = discincentivises labour
PES of labour definition
measures the responsiveness of supply to a change in wage rates
Factors influencing PES of labour
QUT
-Level of qualification and training, hard qualifications or training = inelastic supply
- Unemployment level, high= elastic as large pool of workers= no need for high wage rise
- Time , LR = elastic due to time to train, SR- inelastic as if a job is vocational and wages fall people remain because they like it
MPR
MPR- extra revenue generated when an additional worker is hired
> high MRP = high demand for labour
What is mobility of labour
ability of workers to change jobs
What is occupational immobility of labour
obstacles preventing workers moving from one job to another eg lack of transferable skills
What is geographical immobility of labour
obstacles preventing workers from moving from one place to another eg cost of movement or family ties
Current labour market issues
- Skill shortages
- Wage inequality
- Retirement= negative effect on gov budget
- Migration
Ways giv intervenes in labour market to correct failure
- National minimum/maximum wage
- Public sector wage setting
-Tackling immobility- geographical/occupational
What is National minimum wage
floor wage people cant earn below
What is maximum wage
ceiling wage that limits how much income somebody earns
Adv of min wage
- Reduces poverty, ensures ppl will have enough to live on
- Reduce male/female wage gap in low paying jobs
- Incentive to work and prevents unemployment trap
- Fair wage= reduces exploitation
- Workforce motivation due to minimum wage = increases productivity= increases profits
Dis of min wage
- Loss of jobs in industry if firms cant handle cost
- Increased costs= increased prices = decreased profits as less ppl consume= decreased consumer surplus
All stuff on max price
- Gov can set it on public sector work to decrease gov spending and decrease inequality on high paying jobs
- Must be set below equilibrium to be effective
- It causes excess demand as people may not apply to the job if they dont like the salary = reduction of pool of workers or reduction in best workers= reduce quality and competitiveness of firms in UK as workers could move to other countries
Public sector wage setting
- Trade unions have little power in SR = gob can make decisions on wages to improve the budget
Eg public sector could experience pay freeze= downwards pressure on private sector wages as people in private will not leave due to pay freeze= reduce pay rises in private sector in SR
In LR private sector could receive pay rise and public may not= people could move to private= forces gov to increase wages in public to keep workers
Wages in public and private tend to rise at the same rate in LR. SR rates can rise by different rates
Gov intervention to tackle occupational immobility
- Education= make workers more employable and better at a wide range of jobs
- Encourage further study eg uni = gain right skills
- Encourage firms to spend on training
- Vocational training for younger ppl = learn skills for industry
- Reduce discrimination
Gov intervention to tackle geographical immobility
Improve supply of housing and reduce prices of properties = makes it easier to move
- Reduce rent prices
- Improve infrastructure eg transport links = allowed ppl to move faster = able to work further away
- National advertising = increases exposure to jobs = people know about them
- Subsidies on houses
