3.5 Labour Market Flashcards
Labour Is Derived Demand
Demand for labour depends on demand for goods they produce. If there is more demand for going to restaurants, then there will be more demand for catering staff.
Marginal revenue product MRP
The increase in revenue a firm gains from employing an extra worker
Marginal Physical Product MPP
The increase in output that an extra worker produces
Marginal Revenue
The increase in revenue that a firm gains from selling the last unit of output. Related to price.
Firms Demand for labour depends upon
Productivity
Demand for Good
Substitutes to labour
Wages
Non- wage costs e.g. national insurance, health insurance
Elasticity of demand for labour
How essential is the worker
No. people with qualifications and skills
Time period- In the SR,
demand for labour will be inelastic
Proportion of wage costs
Substitution effect of a rise in wages
Workers will tend to substitute income for leisure, because leisure now has a higher opportunity cost. This leads to more hours being worked as wages rise.
Income effect of a rise in wages
Involves workers working fewer hours when wages increase. Because workers can get a higher target income by working fewer hours.
Market supply of labour depends on
Wage rate
The no. qualified people and the difficulty of getting qualifications
Non- wage benefits- job security, holidays etc
Wage determination in competitive markets
The equilibrium wage rate is set by meeting point of the industry supply and industry demand curves
In a competitive market, firms are wage takers because if they set lower wages, workers would not accept the wage
Geographical immobilities reducing supply of labour
Workers and firms can find it difficult to move. E.g high living costs
Gov policies to reduce geographical immobilities
Building new houses in popular areas
Subsidies to encourage firms to move to depressed areas
Wage bonuses for expensive areas e.g. London
Occupational Immobilities reducing labour supply
Vacancies remain unfilled because unemployed workers have inadequate skills to take on jobs
Structural unemployment
Gov policies to reduce occupational immobility
Provision of education and training
Subsidise firms who provide training schemes
Minimum wage and Monopsony
A minimum wage could counter-act the effect of a monopsony employer, an employer who pays lower wages and employs fewer workers
