3.5 Labour Market Flashcards
List the factors that influence the demand for labour
Level of consumer demand
Productivity of labour
Price of the product
Cost of capital
Wage rate relative to the price of machinery
What does it mean if the demand for labour is derived from the demand of the good
Demand for labour is dependant on the demand for the final good/service being sold
List and explain the factors that affect elasticity of demand for labour
R - Ratio of labour costs to total costs, greater proportion of labour costs increases elasticity
E - Elasticity of demand for the product, if demand for good is price elastic wage rises can be absorbed easier
S - Substitutability, How easy it is to substitute between capital and labour
T - Time, always increases elasticity
List the factors that influence the supply of labour
Size of population
Quantity and content of education and training
Income tax rates and out-of-work benefits
Strength of trade unions
Opportunity cost of leisure
Government regulation
List and explain the factors affecting the elasticity of supply of labour
Occupational Mobility - Quality of transferable skills, Information on available jobs, Ease of moving into new labour markets, Ease of Retraining
Extent of Unemployment - Supply is more elastic when unemployment is high
Time - Longer time periods allow greater response to unemployment trends
Geographical Mobility - Regional cost differences, willingness of individuals to move, information about jobs in other regions
Explain the concept of geographical immobility of labour
When workers find it difficult to move from one area to another
List the factors that may affect Geographical immobility of labour
Lack of knowledge of jobs in other areas
High price of housing/cost of living in other areas
Limited flexibility if in council housing
Family/community ties in existing area
Language barriers
Explain the concept of Occupational immobility of labour
When workers find it difficult to move from one occupation to another
List the factors that may affect Occupational immobility of labour
Skills may not match jobs that are available
Barriers to entry in some professions like professional qualifications, time to retrain is long and costs are high
Show on separate diagrams the wage differentials caused by different levels of Supply and Demand
Demand shifted left and right and Supply shifted left and right, Axis labeled wage and q of labour
Explain the demand factors that cause wage differentials
DIfferent value of labour - workers ‘worth’ more to their employers should earn more
Resources of employers - Employers with greater resources can pay higher wages
Age Differences - Many jobs pay are related to amount of experience
Employer Discrimination - Undervaluing employees worth on a basis of race, gender etc
Explain the supply factors that cause wage differentials
Compensation - Higher pay is a reward for risk-taking and working in poor conditions or having to work unsocial hours, may reflect opportunity cost of acquiring more advanced skills, may be due to living in an area with a high cost of living
Greater supply of lower-skilled labour - more workers are able to fulfill a working role in a lower-skilled job
Draw on separate diagrams a minimum wage and a minimum wage set on an existing minimum wage
same as min price with unemployment and loss of jobs
Explain the reasons why the government may set a min price
Equity - Every job should offer a fair rate of pay for the skills and experience of an employee
Labour Market Incentives - Boosts economies supply of labour
Labour Market Discrimination - Offsets persistent discrimination of many low paid female and young workers
How does NMinW impact Consumers
Rise in prices - as costs rise these rises may be passed on to consumers through price rises to protect profit margins
Evaluation - Firms which don’t employ low wage workers will be unaffected, firms with elastic PED will not pass much increase on price
How does NMinW impact Workers
Workers benefit from higher wages - Positive impact on spending power and living standards
Evaluation - Loss of jobs due to greater cost to businesses causing less demand, however if raised gradually may not have large impact
How does NMinW impact Businesses
Rise in labour costs - Rise in costs will reduce profitability, relevant to labour costs are a large proportion of total costs, rise in AC on diagram
Evaluation - Greater spending in the economy could create extra labour demand, restaurants have greater demand due to lower paid workers being paid more. RIse in AR MR on diagram
How does NMinW impact the Economy
Diagram - Fall in SRAS
How does NMinW impact Inequality
Reduction in Inequality - Rise in pay of the lowest in the economy closes gap between lowest and average wages
Evaluation - Bigger gap between those in and out of work, people out of work may fall behind
Draw a maximum wage diagram
Same as maximum wage with excess demand
Explain the reasons why the government may set a maximum price
Reduce income inequality
Typically used on the highest paid
Eg, CEOs cannot earn more than 20x the lowest paid
How does a maximum wage impact workers
Rise in wages - A maximum wage ratio (1:20 eg) would limit the ability of a CEO to raise their own wage without raising the wages of the lowest paid
Evaluation - Companies could out-source low paid work so that they no longer count as employees which worsens job security and conditions
How does a maximum wage impact Incentives to work
A greater incentive to take paid work - The bigger the gap between unemployment benefits and the lowest paid increases incentives to take paid work
Evaluation - Companies could relocate to countries without pay restrictions, leading to fewer job opportunities
How does a maximum wage impact inequality
Reduction in the gap between the richest and the poorest - prevents the difference between rich and poor workers going beyond a set level
Evaluation - The richest could find pay loopholes to ensure higher pay without counting towards wage ratio eg, payment through shares
