3.5 Labour Market

Question 1

List the factors that influence the demand for labour

Answer 1

Level of consumer demand
Productivity of labour
Price of the product
Cost of capital
Wage rate relative to the price of machinery

Question 2

What does it mean if the demand for labour is derived from the demand of the good

Answer 2

Demand for labour is dependant on the demand for the final good/service being sold

Question 3

List and explain the factors that affect elasticity of demand for labour

Answer 3

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

Question 4

List the factors that influence the supply of labour

Answer 4

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

Question 5

List and explain the factors affecting the elasticity of supply of labour

Answer 5

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

Question 6

Explain the concept of geographical immobility of labour

Answer 6

When workers find it difficult to move from one area to another

Question 7

List the factors that may affect Geographical immobility of labour

Answer 7

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

Question 8

Explain the concept of Occupational immobility of labour

Answer 8

When workers find it difficult to move from one occupation to another

Question 9

List the factors that may affect Occupational immobility of labour

Answer 9

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

Question 10

Show on separate diagrams the wage differentials caused by different levels of Supply and Demand

Answer 10

Demand shifted left and right and Supply shifted left and right, Axis labeled wage and q of labour

Question 11

Explain the demand factors that cause wage differentials

Answer 11

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

Question 12

Explain the supply factors that cause wage differentials

Answer 12

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

Question 13

Draw on separate diagrams a minimum wage and a minimum wage set on an existing minimum wage

Answer 13

same as min price with unemployment and loss of jobs

Question 14

Explain the reasons why the government may set a min price

Answer 14

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

Question 15

How does NMinW impact Consumers

Answer 15

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

Question 16

How does NMinW impact Workers

Answer 16

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

Question 17

How does NMinW impact Businesses

Answer 17

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

Question 18

How does NMinW impact the Economy

Answer 18

Diagram - Fall in SRAS

Question 19

How does NMinW impact Inequality

Answer 19

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

Question 20

Draw a maximum wage diagram

Answer 20

Same as maximum wage with excess demand

Question 21

Explain the reasons why the government may set a maximum price

Answer 21

Reduce income inequality
Typically used on the highest paid
Eg, CEOs cannot earn more than 20x the lowest paid

Question 22

How does a maximum wage impact workers

Answer 22

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

Question 23

How does a maximum wage impact Incentives to work

Answer 23

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

Question 24

How does a maximum wage impact inequality

Answer 24

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

Question 25

What is the public sector

Answer 25

The portion of the economy controlled by the government

Question 26

Explain the influence that the government has on wages in the public sector

Answer 26

Government has very strong influence as trade unions are relatively weak in the UK

Question 27

How does the strength of trade unions influence the government’s freedom to set public sector wages

Answer 27

When public sector trade unions are stronger it is more difficult to unitarily decide on pay, trade union industrial action sways public opinion

Question 28

List the policies used to tackle geographical immobility of labour

Answer 28

Provide relocation subsidies to workers who have to move house

Improve Quality of transport infrastructure

Subsidise public transport to make it more affordable

Subsidies & financial incentives for job types with shortages in specific types of labour

Provision of information for jobs available in other regions

Question 29

List the policies used to tackle occupational immobility of labour

Answer 29

Improving education

Providing specific training - targeted training at skill shortages within the economy

Subsidising employers who take on unemployed workers

Reform tax or benefits systems to increase incentives to work