3.5 Labour market Flashcards
demand for labour definition
how many workers an employer is willing and able to hire at given wage rate in given time period
factors affecting demand of labour
changes in consumer demand
changes in product prices - thus resulting in changes in revenues e.g. price increase, incentive to increase prod, more labour required
changes in labour productivity
employment subsidy / tax incentive
changes in price of capital
factors affecting elasticity of demand for labour
labour costs as a proportion of total costs: high proportion, more elastic as an increase in wages will have proportionately bigger impact on costs
ease and cost of factor substitution
PED of final prod: determines whether firm can pass on costs to customers or not
time period: in LR, easier to switch to labour
supply of labour definition
number of hours that people are willing and able to work at a given wage rate at a given time period
factors affecting supply of labour
real wage rate plus extra pay (bonuses)
wages in substitute occupations
barriers to entry such as artificial limits to industry like qualifications
improvements in occupational mobility of labour
non-monetary characteristics: job risk, working conditions, career progression
net migration of labour
demographic factors
people’s preferences: work/leisure balance, desire for flexible
income effect
higher wage means workers can achieve a target income by working fewer hours. Therefore, if wages increase, it becomes easier to get enough income through working fewer hours.
substitution effect
higher wage makes work more attractive than leisure. Therefore, in response to higher wages, supply increases because work gives greater remuneration
factors that affect elasticity of supply of labour
nature of skills and qualifications needed
vocational: less sensitive to wage change
short run: inelastic
types of market failure in labour market
geographical immobility (barriers to people moving from one area to another to find work)
occupational immobility (between industries due to skills gap, experience gap, lack of confidence)
employer discrimination
monopsony employer (sole employer) (lower wage rate given than if competitive)
disincentives to work (taxes/benefit system opportunity cost)
training gap
poverty trap
people on low incomes disincentivised to work due to opportunity cost of doing nothing and working and paying taxes
unemployment trap
prospect of loss of unemployment benefits dissuades those without work from taking new job
minimum wage
legally enforced pay floor
case for minimum wage
fair pay for skills and experience of employee
poverty reduction for the lowest paid
encourages forms to upskill their workers leading to higher labour productivity
improved incentive for those on benefits to seek work
anti discrimination
against minimum wage
higher costs for firms can lead to unemployment
small businesses may not be able to afford
greater incentives thru training
uk business less internationally competitive
higher inflation, less purchasing power for cons
gov intervention to control monopolies
tax on profits - windfall tax on supernormal profits, risk of tax avoidance and lack of capital spending, discouraging investment as deemed to be government throwing a tax at any given time
liberalisation of markets - break up monopoly, increased contestability, smaller business may find it hard to compete and scale up
price capping
nationalisation - public ownership, loss of productive efficiency
profit regulation - rate of return regulation (firms will try to predict to regulators that costs will be higher and cause asymmetric info)
