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Econ Theme 3 > 3.5 Labour Market > Flashcards

3.5 Labour Market Flashcards

LS9

1
Q

Derived demand?

A
  • Demand for a good or service as a result of demand for a different, or related, good or service

i.e. labour

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2
Q

Movements vs shifts in demand for labour?

A
  • Movements caused by changes in wage rate
  • Shifts caused by other factors
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3
Q

Factors that shift demand curve for labour?

A
  • Changes to productivity of labour - more productive = more demand
  • Changes in demand/price of good that labour produces
  • Changes in price of capital - capital cheaper = less demand for labour
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4
Q

Substitution effect?

A
  • Increase in wage = leisure has bigger opportunity cost = increased substitution of leisure with work
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5
Q

Income effect?

A
  • Higher wage = higher disposable income = increased consumption of goods and services (including leisure)

(Assuming that leisure is a normal good)

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6
Q

Shape of individual labour supply curve?

A
  • Backward bending
  • At relatively low wages, substitution effect stronger then as wage rises, income effect gradually stronger
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7
Q

Shape of industry labour supply curve?

A
  • Upward sloping
  • More people tend to offer themselves for work when wage is relatively high
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8
Q

How does the price mechanism relate to labour market?

A
  • Wages act as a signal to workers about which industries are offering best returns for work
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9
Q

Factors that cause shifts to industry labour supply curve?

A
  • Size of working age population
  • Demographic changes and immigration
  • Wages on offer in substitute occupations
  • Barriers to entry (e.g. qualifications)
  • Non-pecuniary benefits (perks involved with job e.g. staff discounts)
  • Overtime
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10
Q

What happens when wage is below market equilibrium?

A
  • Excess demand for labour, vacancies will not be filled

Higher wage has to be offered to fill vacancies

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11
Q

What happens when wage is above market equilibrium?

A
  • Excess supply of labour

Wage will drift down until equilibrium reached

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12
Q

Effect of increase in demand for labour in the LR

A
  • Demand shifts rightwards from DL0 to DL1, wage rises from W0 to W1 (short run)
  • But encourages workers to switch from other industries, shifting supply of labour rightwards from SL0 to SL1, reducing wage rate
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13
Q

Impacts of immigration to labour market?

A
  • Increases supply of labour so wages initially fall
  • But, new workers lead to increased spending and demand in economy = increased demand for labour
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14
Q

Two types of factor immobility of labour?

A
  • Occcupational
  • Geographical
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15
Q

Occupational immobility of labour?

Policies to remove it?

A
  • Refers to workers being unable to move between jobs as they lack the appropriate skillls/training

i.e. structural unemployment w/ steel industry

Investing in training schemes

Subsidising vocational training

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16
Q

Geographical immobility of labour?

Policies to remove it?

A
  • Refers to workers being unable to move to different places to seek and find work

e.g. migration laws, regional variations, high rent costs

Reforms to housing market e.g. reducing restrictions on green belt

Specific subsidies e.g. temporary housing for nurses, Help to Buy scheme

17
Q

Wage rate?

A

The price of labour

18
Q

Current issues in labour market?

A
  • Trade Union
  • Gender pay gap
  • Ageing population
  • Skill shortages
19
Q

Minimum wage definition?

A
  • The minimum amount firms legally have to pay their workers
20
Q

Maximum wage definition?

A
  • For specified industries and jobs, wages cannot exceed a certain level
21
Q

Benefits of a minimum wage?

A
  • Reduces poverty
  • Increases productivity
  • Increases incentives to accept a job
  • Increased investment (labour more costly to firms will invest in productivity for max efficiency)
  • Counterbalances effect of monopsony employers (e.g. NHS)
22
Q

Problems with a minimum wage

A
  • Unemployment if above labour market equilibrium (excess supply, not enough demand for labour)
  • Regional variations in wages
  • Higher wages passed onto consumers
  • Incentive to work in black market for firms
23
Q

Arguments for a maximum wage?

A
  • Helps reduce costs for firms
  • Regulates worker’s excess monopoly power
  • Prevents skilled labour from entering professions with highest paid jobs (e.g. all graduates becoming lawyers leading to lack of doctors/engineers etc.)
24
Q

Arguments against a maximum wage?

A
  • Limits income of high earners and government gets nothing in return
  • Disincentivises work
25
Q

Elasticity of labour supply?

A
  • Measures the responsiveness of labour supply to a change in the wage rate

Low skilled occupation = elastic labour supply
High skilled occupation = inelastic labour supply

26
Q

Elasticity of demand for labour?

A
  • Measures responsiveness of demand for labour to changes in the wage rate

Elastic => ↑ wage rate = aggressive cutback on employment and ↓ wage rate = rapid expansion

Econ Theme 3 (15 decks)

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