3.5 - Labour market Flashcards
Derived demand
3.5.1 - Demand for labour
Demand for a factor of production such as labour as a result of demand for the final product that that factor of production produces
Human capital
3.5.1 - Demand for labour
The amount of skill, knowledge, talent, experience and ability of workers. Human capital can be increased through education and training
Incentive scheme
3.5.1 - Demand for labour
A motivational scheme for employees, designed to encourage increased productivity/efficiency/working to the company objectives. Examples could include share schemes, bonuses, commission on sales, additional holiday, company car and formal awards
Income
3.5.1 - Demand for labour
The flow of earnings to a factor of production, Labour earns wages. Capital earns interest. Land earns rent. Enterprise earns profit.
Informal labour markets
3.5.1 - Demand for labour
Also known as the “grey” market, shadow economy, or black economy. This is the part of the economy that is not taxed or regulated by goverment, and therefore does not feature in the GDP statistics for that country. People working in the informal labour market are likely to be paid in cash, and may undertake work such as domestic cleaning/gardening, babysitting, car-washing and is characterised by unstable employer-employee relationships. Informal work is often vitally important to the poor
Discouraged workers
3.5.2 - Supply of labour
People out of work for a long time who may give up on job search and effectively leave the labour market. They become economically inactive. See hidden unemployment
Geographical mobility of labour
3.5.2 - Supply of labour
The ability of labour to move around an area, region or country in order to work. Geographical mobility is affected by things such as family ties, transport networks, transferable qualifications and common langauge
Labour supply (to an industry/occupation)
3.5.2 - Supply of labour
The labour supply is the number of hours that people are willing and able to supply at a given wage rate. The labour supply curve for any industry or occupation will be upward sloping. As wages rise, other workers enter this industry attracted by the incentive of higher pay
Non-pecuniary influences on labour supply
3.5.2 - Supply of labour
The notion that labour is supply is affected by factors other than wages or money, for examples, working conditions, the amount of leisure time, the facilities available at work, the sociability of the hours etc. Also known as non-monetary factors.
Pecuniary influences on labour supply
3.5.2 - Supply of labour
The notion that labour supply is affected by the wage rate and other monetary advantages, such as, perhaps, the ability to buy shares, or the existence of bonuses. Also known as monetary factors
Compensating (wage) differentials
3.5.3 - Wage determination in competitive and non-competitive markets
Higher may be eanred for relatively low skilled jobs if working conditions are unsociable, unplesent or dangerous, whereas lower pay may be eanred for higher skilled jobs if the working conditions are nice, flexible and safe
Demographic change
3.5.3 - Wage determination in competitive and non-competitive markets
Any change in the population, for example in terms of the average age, dependency ratios, life expectancy, family structures, birth rates etc.
Discrimination
3.5.3 - Wage determination in competitive and non-competitive markets
The different treatment of people as a result of factors such as age, gender, race, sexual orientation, ethnicity.
Earnings
3.5.3 - Wage determination in competitive and non-competitive markets
Earnings are made up of wages plus overtime pay, bonuses and commission
Economic rent
3.5.3 - Wage determination in competitive and non-competitive markets
Any amount earned by a factor of production, such as labour, above the minimum amount they require to work in a current occupation
Economically inactive population
3.5.3 - Wage determination in competitive and non-competitive markets
Those who are of working age but are neither in work nor actively seeking paid work
Effective marginal tax rate
3.5.3 - Wage determination in competitive and non-competitive markets
The effective marginal tax rate is the tax rate on each extra £1 of inomce - it also takes into account the impact of direct taxes (such as income tax) but also the possible withdrawal of means-tested welfare benefits if people take a paid job. A high effective marginal tax rate is the root cause of the unemployment trap, it creates disincentives to find work
Efficiency wage
3.5.3 - Wage determination in competitive and non-competitive markets
A theory that suggests it may benefit firms to pay workers a wage higher than their marginal revenue product. Paying a higher wage improves worker morale and can lead to a high quality of people applying for new jobs as they become available
Elasticity of labour demand
3.5.3 - Wage determination in competitive and non-competitive markets
Elasticity of labour demand measures the responsiveness of demand for labour (employment) when there is a change in the wage rate
Flexible labour market
3.5.3 - Wage determination in competitive and non-competitive markets
A labour market that adjusts quickly to changes in the demand for and supply of labour. Characteristics include flexible employment contracts and flexible pay
Full employment
3.5.3 - Wage determination in competitive and non-competitive markets
When there are enough unfilled job vacancies for all the unemployed to take paid work
Gender pay gap
3.5.3 - Wage determination in competitive and non-competitive markets
The difference between male and female earnings, usally expressed as a percentage of male earnings.
Imperfectly competitive labour market
3.5.3 - Wage determination in competitive and non-competitive markets
A labour market in which workers or firms have the power to set and influence wages and therefore wage determination occurs according to marginal revenue product theory. Imperfections in the labour market can include monopsony, trade unions, discrimination, poor imformation and skills shortages which can transfer power to workers (suppliers of labour) and allow them to demand higher wages in return for their labour
Labour market failure
3.5.3 - Wage determination in competitive and non-competitive markets
A labour market in which there is not an efficient allocation of resources. Reasons for labour market failure include:
* Discrimination
* Economic activity
* Skills shortages
* The action of trade unions
* The action of monopsony employers
* Labour immobility (geographical and occupational)
Labout market flexibility
3.5.3 - Wage determination in competitive and non-competitive markets
The speed and ability of a labour market to respond to a change in the economy. Flexability if often regarded as essential for good supply-side performance in an economy. Flexibility can refer to flexibility in terms of occupation/skills, location, number of hours worked, pay arrangements and so on
Living wage
3.5.3 - Wage determination in competitive and non-competitive markets
A wage that provides enough money for a working person to live decently and provide for their family. That wage rate is estimated to be at £9 per hour outside of London, and £11 per hour in London as of 2019
Maximum wage
3.5.3 - Wage determination in competitive and non-competitive markets
A wage that is set below the equilibrium wage rate. In theory, the outcome would be an excess in demand for labour, or a labour shortage
Migration
3.5.3 - Wage determination in competitive and non-competitive markets
The movement of people especially workers, between countries
Immigration refers to people entering a country
Emmigration refers to people leaving a country
Net migration refers to the difference between the number of people entering and leaving a country
Minimum wage
3.5.3 - Wage determination in competitive and non-competitive markets
A wage that is set above the equilibrium of wage rate. In theory, the outcome would be an excess supply of labour, or unemployment - called the National Living Wage since 2016
Money wages
3.5.3 - Wage determination in competitive and non-competitive markets
Also known as “nominal wages”; the actual hourly rate of pay - it is not adjusted for inflation
Monopsony employer
3.5.3 - Wage determination in competitive and non-competitive markets
A labour market structure in which there is a single powerful buyer of a particular type of labour. For example, the main buyer of labour of doctors and nurses in the NHS. In the case of the labour market, a monopsony employer will tend to pay relatively lower wages and employ fewer people (than in a highly competitive labour market).
National Living Wage
3.5.3 - Wage determination in competitive and non-competitive markets
The official name for the minimum wage in the UK since 2016
NEET
3.5.3 - Wage determination in competitive and non-competitive markets
A young person (usally between 16-24) who is Not in Employment, Education or Training. There are around 900,000 NEETs in the UK in 2024
Nominal wage
3.5.3 - Wage determination in competitive and non-competitive markets
Also known as “money wages”; the actual hourly rate of pay - it is not adjusted for inflation
Pension
3.5.3 - Wage determination in competitive and non-competitive markets
A pension is a payment made to people who have retired from work. In the UK there is the State Pension, which is paid to retired people over the age of 66 if they have paid National Insurance contributions. In addition, many people pay into a pension scheme throughout their working lives - a pension scheme is a long-term savings plan which provides people with additional income in retirement. All UK employers are new required to offer Workplace Pensions to their employees
Perfectly competitive labour market
3.5.3 - Wage determination in competitive and non-competitive markets
A hypothetical ideal, in which the following conditions are met:
* Many suppliers of labour and many buyers of labour, none with any market power, therefore workers are all wage-takers and no employers are wage-makers
* Homogeneous labour supply (i.e. all workers have indenitcal skills and abilities, and can transfer between jobs easily)
* No government intervention in the labour markey
* Perfect knowledge e.g. of the productivity of the worker
Performance related pay (PRP)
3.5.3 - Wage determination in competitive and non-competitive markets
A wage or salary paid to a worker in relation to how well or how productively they have worked, usally by assessing performance against pre-agreed objectives
Poverty trap
3.5.3 - Wage determination in competitive and non-competitive markets
A situation in which there is little incentive for workers in low-paid jobs to earn extra income, because it would result in having to either pay higher direct tax and/or losing some of their welfare benfit payments
Monopsony employer
3.5.3 - Wage determination in competitive and non-competitive markets
A labour market structure in which there is a single powerful buyer of a particular type of labour. For example, the main buyer of the labour of doctors and nurses is the NHS. In the case of the labour market, a monopsony employer will tend to pay relatively lower wages and employ fewer people (than in a highly competitive labour market)
Productivity
3.5.3 - Wage determination in competitive and non-competitive markets
The value of output per worker employed or output per person-hour
Productivity bargaining
3.5.3 - Wage determination in competitive and non-competitive markets
Reaching an agreement between employers and employees (through collective bargaining) in which employees agree to measures that will raise productivity, in return for an increase in pay or improvement in other working conditions
Real wages
3.5.3 - Wage determination in competitive and non-competitive markets
The hourly rate of pay adjusted for inflation
Replacement ratio
3.5.3 - Wage determination in competitive and non-competitive markets
The proportion of your income in your working life that you need to maintain the same level of living standards in your retirement
Skills shortage
3.5.3 - Wage determination in competitive and non-competitive markets
A type of labour market failure in which not enough labour possesses the skills demanded by employers. Common in occupations which require high-levels skills
Strike
3.5.3 - Wage determination in competitive and non-competitive markets
Action taken by a trade union in which members do not work, usually due to grievances or concerns over working conditions or pay. Also known as industrial action
Substitution effect (of labour supply)
3.5.3 - Wage determination in competitive and non-competitive markets
This effect is relevant to the individual labour supply curve rather the industry labour supply curve. The substitution effect explains the upwards sloping section of the labour supply curve - as the wage rate rises, wrokers are willing to work more hours and substitute away from their leisure time, because the opportunity cost of leisure time rises with a higher wage rate
Supply side policies
3.5.3 - Wage determination in competitive and non-competitive markets
Any policy designed to increase long run aggregate supply. In terms of labour markets, this could include increasing labour flexibility, skills/traning of workers and so on
Trade union
3.5.3 - Wage determination in competitive and non-competitive markets
An organised group of employees who work together to represent and protect the rights of workers, usually by using collective bargaining techniques
Transfer earnings
3.5.3 - Wage determination in competitive and non-competitive markets
The minimum reward required to keep factors of production, such as labour, in its current occupation
UK employment legislation
3.5.3 - Wage determination in competitive and non-competitive markets
There are many pieces of legislation that help to govern the relationship between employees, employers and trade unions in the UK. Some of the key laws include:
* Equal Pay Act 1970
* Health and Safety at Work Act 1974
* Trade Union and Labour Relations Act 1992
* Employment Rights Act 1996
* National Minimum Wage Act 1998
* Maternity and Parental Leave Regulations 1999
* Equality Act 2010
* Agency Workers Regulations 2010
Unemployment trap
3.5.3 - Wage determination in competitive and non-competitive markets
A situation in which there is little financial incentive for someone who is unemployed to start working because the combined loss of welfare benefits and need to pay off income tax and other direct taxes might result in them being worse off
Union density
3.5.3 - Wage determination in competitive and non-competitive markets
The percentage of a labour force that belongs to a trade union
Unit labour costs
3.5.3 - Wage determination in competitive and non-competitive markets
The average cost of labour per unit of output; effectively, the proportion of the cost of production of a product accounted for by labour costs. Calculated using the formula: Unit labour costs = total labour costs + total level of output.
(ULC = TLC/Q
Universal Credit
3.5.3 - Wage determination in competitive and non-competitive markets
A new type of single monthly benefit designed to replace 6 separate benefits for people who are on low income or out of work. It replaces the following benefits:
* Income-based Jobseekers Allowance (JSA)
* Income Support
* Child Tax Credit
* Working Tax Credit
* Housing Benefit
Wage differentials
3.5.3 - Wage determination in competitive and non-competitive markets
The difference in wages between workers. The term can refer to differences in wages between differently skilled workers in the same industry, or similar-skilled workers in different industries
Wage elasticity of demand for labour
3.5.3 - Wage determination in competitive and non-competitive markets
The responsiveness of the demand for labour in response to a cahnge in the wage rate of labour. Calculated using the formula: %ΔDₗ + %ΔW
Wage elasticity of supply of labour
3.5.3 - Wage determination in competitive and non-competitive markets
The responsiveness of the supply of labour in response to a change in the wage rate of labour. Calculated using the formula: %ΔSₗ + %ΔW
Wildcat strike
3.5.3 - Wage determination in competitive and non-competitive markets
Also known as “unofficial industrial action”, a wildcat strike is taken by unionised workers without official approval or authorisation by union officials
Zero hours contracts
3.5.3 - Wage determination in competitive and non-competitive markets
Zero Hour Contracts do no garuntee a minimum number of working house each week. In the UK labour market, People on “zero-hours contracts” are more likely to be young, part-time, women, or in full-time education when compared with other people in employment
