3.5 - Labour Market

Question 1

What is the demand curve for kabour determined by?

Answer 1

MRP

Question 2

What is the MRPL?

Answer 2

Marginal Revenue Product of Labour - revenue gained by adding an additional worker

Question 3

What does higher MRPL mean?

Answer 3

Higher demand for labour (DL)

Question 4

Why does the demand curve for labour slope downwards?

Answer 4

a) In LR, if wages are high, firms will use capital instead
b) In SR, diminishing marginal productivity - each new worker = less revenue, decrease wages

Question 5

Factors of Demand for labour

Answer 5

1) Derived demand from the product
2) technology - job losses
3) wages/price of labour
4) price of substitutes
5) wages in other countries
6) regulation
7) STATE OF THE ECONOMY

Question 6

What is PEDL?

Answer 6

Price Elasticity Demand for Labour - directly linked to the product made

Question 7

Factors of PEDL

Answer 7

• cost of labour as a percentage of total costs
• substitutes for labour
• time - everything is more elastic over time (golden rule)

Question 8

Influencer on Supply of Labour

Answer 8

1) Wages
2) population - immigration, emigration
3) non-monetary benefits - “compensating differentials”
4) education
5) Trade unions
6) availability of other jobs
7) legislation

Question 9

Affect of wages on supply of labour

Answer 9

increased wages -> increased supply of labour, but may decrease supply of labour if wages keep rising (employees choose leisure over work).

At first, people work more as wages increase, but then earn the same amounts doing less work (BACKWARDS BENDING SUPPLY CURVE)

Question 10

Influences on PES of labour

Answer 10

• qualifications - more wages -> inelastic
• production substitutes -> replaced by machines (elastic)

Question 11

2 types of labour immobility

Answer 11

occupational - inability to get skills for a job, solved by education/training
geographical - inability to travel for different jobs, solved by subsidised travel

Question 12

Wage determination

Answer 12

in a competitive market they’re determined by demand and supply - not monopoly/monopsony power

Question 13

Public sector wages (Government Intervention in labour market)

Answer 13

• typically lower
• monopsony power (government)
• weaker trade unions (lower membership)
• pay freeze (austerity in the 2010s)
• switch public to private sector
• “compensating differentials” -> WFH, pensions etc

Question 14

Current issues in the Labour Market

Answer 14

• skills shortages (STEM) -> increase education -> increase immigration (EV)
• wage inequality -> gender, age
• national minimum wage vs living wage
• 0 hour contracts
• technology (E.g: AI)