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Economics > 3.5 labour markets > Flashcards

3.5 labour markets Flashcards

1
Q

what does the demand curve show in labour markets?

A

The demand curve for labour shows the quantity of labour that employers would wish to hire at each possible wage rate.

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2
Q

what is the demand for labour determined by?

A

the marginal revenue product, which is the extra revenue generated by the individual worker

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3
Q

what is the formula for marginal revenue product?

A

marginal physical product x marginal revenue

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4
Q

why is the demand curve downward sloping in the labour market?

A

in long run all factors of production vary so high wages will encourage capital investment to use machinery instead of workers. in the short run firms have fixed capital, therefore the MRP experiences diminishing returns meaning workers give lower returns so to get hired they must accept lower wages

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5
Q

why is the demand for labour derived demand?

A

Firms hire workers in order to produce goods to meet their aim, usually of making a profit. the demand for labour is derived demand as it is derived from demand for the product the labour produces.

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6
Q

what are factors that influence the demand for labour?

A

Wage rates, Demand for the product, Prices of other factors of production, Wages in other countries, Technology, Regulation

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7
Q

how does wage rates influence the demand for labour?

A

As wage rates increase, demand for labour contracts since the MRP of labour must be higher for it to be worthwhile employing more people, so less people are employed.

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8
Q

how does Demand for the product influence the demand for labour?

A

Since labour is a derived demand, if there is no demand for the product, there is no demand for the labour. Firms won’t employ people if the goods they make aren’t going to be sold and make a profit.

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9
Q

how does Prices of other factors of production influence the demand for labour?

A

If machinery and equipment becomes cheap, people will switch machinery for labour and therefore the demand for labour will fall.

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10
Q

how does Wages in other countries influence the demand for labour?

A

If wages are lower in other countries and therefore
wages in the UK are relatively high, people will be employed in other countries as it represents a lower cost for businesses. This means that demand in the UK is low.

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11
Q

how does Technology influence the demand for labour?

A

Improvements in computers and technology means that many jobs have been lost with the work being done by machines. This means that there is less
demand for labour, but demand for labour in technological based industries is increasing.

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12
Q

what is an example of technology influencing demand for labour?

A

By 2034, about 47% of jobs could be lost to technology and automation - oxford martin school

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13
Q

how does Regulation influence the demand for labour?

A

High regulation within the labour market is likely to discourage firms from hiring since it can be very costly and time-consuming so this will reduce demand
for labour in these areas

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14
Q

what is an example of regulation influencing demand for labour?

A

France is a country that used to have high levels of labour regulation and this is something the new president, Emmanuel Macron, is trying to change

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15
Q

what is the wage elasticity of demand for labour?

A

This is the responsiveness of the quantity demanded of labour to a change in the wage rate

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16
Q

what are the factors that affect the wage elastic demand for labour?

A

the price elasticity of demand for the product, the proportion of wages to the total cost of production, substitutes (machinery and foreign labour), time frame

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17
Q

how does the price elasticity of demand for the product affect the price elasticity of demand for labour?

A

It is directly correlated to the price elasticity of demand for the product the labour produces. If the good is elastic, then a rise in wages and hence a rise in prices for consumers will have a large impact on the quantity the business sells. This will mean that the business will reduce the number of people it employs

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18
Q

how does the the proportion of wages to the total cost of production affect the price elasticity of demand for labour?

A

if wages are a huge proportion of costs, then an increase in wages will increase costs massively and so there will be a large fall in demand for labour hence it will be elastic.

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19
Q

how does the number of substitutes affect the price elasticity of demand for labour?

A

If there are many substitutes, such as machinery and labour in other countries, then the demand will be elastic. This means high skilled jobs tend to be more inelastic than low skilled jobs as the labour cannot be easily replaced.

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20
Q

how does the time frame affect the wage elasticity of demand for labour?

A

In the long run, it is more elastic as machinery can be
developed and jobs can be moved whilst in the short run firms have to employ workers and redundancy payments can be expensive.

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21
Q

what does the supply of labour shows?

A

The supply of labour curve shows the ability and willingness of people to make themselves available to work at different wage rates.

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22
Q

what are the Factors influencing supply of labour?

A

Wages, Population and distribution of age, Non-monetary benefits, Education/training/qualification, Trade unions and barriers to entry, Wages and conditions of other jobs, Legislation

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23
Q

how does wages influence the supply of labour?

A

an increase in wages will encourage more workers to become available for labour however may not encourage the number of hours worked by the individual.

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24
Q

what does the individual supply of labour curve look like and why?

A

The supply of labour curve for an individual is a backward bending curve: an increase in wages will lead to an increase in hours worked at first but beyond a certain point, it will lead to a decrease in hours worked.

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25
Q

what are the two ways a firm can increase the aggregate number of hours worked by the workforce?

A

it can increase the number of hours by its existing labour force or it can recruit new workers

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26
Q

how does the population and distribution of age influence the supply of labour?

A

A high population will mean there is a large supply of labour. The distribution of age is important as there needs to be many people of high working age to ensure there is lots of labour. Migration plays a role in determining the workforce, since many migrants are of working age and come to the UK to work.

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27
Q

how does the non monetary benefits influence the supply of labour?

A

Supply of labour will increase if there is high job
satisfaction. Some jobs are attractive because they
are close by or in an area with good social life. some jobs offer perks such as free private healthcare etc. which will increase supply.

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28
Q

how does the Education/training/qualification influence the supply of labour?

A

More educated workers means there is a higher
supply of workers. This is particularly important for some industries which require qualifications. Occupations which require high levels of education may suffer from lower supply of labour compared to low skilled jobs.

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29
Q

how does the Trade unions and barriers to entry influence the supply of labour?

A

Trade unions may be able to restrict the supply

of labour by introducing barriers to entry, for example you have to have a degree for teaching.

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30
Q

how does the Wages and conditions of other jobs influence the supply of labour?

A

If many jobs in a local area are considered to be unpleasant and offer low wages, then supply for alternatives will be higher.

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31
Q

how does the Legislation influence the supply of labour?

A

The government rules can affect supply of labour, for example school leaving age and the retirement age.

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32
Q

what are the two types of labour immobility?

A

occupational or geographical immobility

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33
Q

what is occupational immobility?

A

occupational immobility where workers find it difficult to move from one job to another because of a lack of transferable skills. It is particularly difficult in the short term when workers need to get new training but in the long run it may only be possible at a high cost.

34
Q

what is geographical immobility?

A

geographical immobility where they find it difficult to
move from one place to another due to the cost of movement, family etc. Housing is also a big issue because people may not be able to afford to buy a house in their new area.

35
Q

what is the relationship with income and geographical immobility?

A

In general, those on lower incomes are more geographically immobile.

36
Q

how does labour immobility create market failure?

A

Immobility can mean that there can be excess supply of labour in one area/occupation and excess demand in another. Even if wages are higher where there is excess demand, people will be unable to leave where there is excess supply to get a job in that area/occupation because of their immobility.

37
Q

what is an example of labour market failure in the UK?

A

The UK suffers from a severe skills shortage and this could cost £90bn a year following Brexit. There are four million too few high skilled people but six million too many low skilled people. Engineering is one industry suffering particularly badly from skills shortages

38
Q

what is the wage elasticity of supply?

A

This is the responsiveness of supply to a change in wage rates.

39
Q

what influences the elasticity of supply?

A

the level of qualifications and training, the availability of suitable labour in other industries, time frame

40
Q

how does the level of qualification and training influence the elasticity of supply?

A

if there is a high level of qualifications necessary for the job, people will not easily be able to take up the job so the supply of labour will be inelastic.

41
Q

how does the availability of suitable labour in other industries influence the elasticity of supply?

A

if a company can ‘poach’ workers from other industries, then it will be more elastic.

42
Q

how does the time frame influence the elasticity of supply?

A

in the long run supply of labour will be more elastic
as people will have time to train. If the job is vocational, it will be inelastic since even if wages fall people won’t leave the job.

43
Q

how are wages determined in a perfectly competitive market?

A

wages are determined purely by demand and supply

and all workers are paid the same.

44
Q

how are wages determined in a monopsony in the labour market?

A

if businesses want to increase their labour force they will have to increase the wage they offer and, just like with monopsony product markets, an increase in the wage for one increases the wage for all.

45
Q

what is a monopsony in the labour market?

A

In a monopsony market, there is only one buyer of the labour.

46
Q

what is an example of a monopsony in the labour market?

A

the NHS is a monopsony of the nurses and the government is a monopsony of police

47
Q

how is a monopsony market for labour shown on a graph?

A

the MC curve is above the supply curve (AC) of labour

because it costs more to employ an additional worker than the average cost of labour.

48
Q

at what point will a monopsony purchase labour up to?

A

A firm will determine how many workers to employ where the cost of employing them is equal to the value of that worker to the company. MC=MRP

49
Q

how does a monopsony in the labour market compare to a perfectly competitive labour market?

A

Compared to a perfectly competitive market (which would produce at W2Q2), they employ less people at a lower wage rate.

50
Q

what is a monopoly in the labour market?

A

when there is only one supplier of labour in a market

51
Q

what is an example of a monopoly in the labour market?

A

a trade union

52
Q

what does a trade union do?

A

A trade union is an organisation with members who are usually workers or employees, which protects the rights and pay of workers through a process of collective bargaining.

53
Q

how does a trade union ensure higher wages?

A

they could set up barriers to entry which reduces supply and also set specific wages to ensure workers are not paid for less

54
Q

what is an example of a trade union ensuring higher wages for the workers?

A

Teachers’ unions lobbied for a rule which means that all teachers must have degrees .

55
Q

what is the effect of monopolies/ trade unions in the labour markets?

A

they will lead to higher wages however could lead to a fall in employment

56
Q

how has the government intervened to prevent trade unions?

A

The government have been able to reduce the power of trade unions through acts which have introduced postal ballots, outlawed secondary picketing, restricted the size of the picket line and forced unions to provide 14 days’ notice of action.at least 50% of people must vote in the ballot; the most recent teachers union ballot only had 28% voting turnout.

57
Q

what is a bilateral monopoly?

A

when there is both a monopoly and a monopsony in the labour market at the same time

58
Q

how is the wage determined in a bilateral monopoly?

A

The wage that is set will depend on the relative bargaining strength of both. This is dependent on
a number of factors, including the size of the union and the strength of the economy. In a time of economic recession and unemployment the unions may have less bargaining power and wage is most likely to be down

59
Q

what is significant about the impact of trade unions in a bilateral monopoly?

A

This diagram highlights that Unions can have a positive impact on both wages and the number of people employed

60
Q

what are labour market issues ?

A

Skills shortages, Young workers, Retirement, Wage inequality, Zero-hour contracts, The ‘Gig economy”, Migration

61
Q

how does the skills shortage cause labour market issues?

A

The UK suffers from geographical and occupational immobility, which means that even if there are enough engineers, there aren’t enough engineers
in certain areas.

62
Q

how does the young workers cause labour market issues?

A

Workers who join the workforce during recessions tend to receive lower lifetime earnings than those who enter the labour force in better times. Youth unemployment can be a particular issue; during hard times, firms are unlikely to employ new workers but are reluctant to let go of their current workers and so the young struggle to get a job.

63
Q

how does retirement cause labour market issues?

A

Rising life expectancy and an increase in the number of people reaching retirement age, as the ‘baby boomers’ reach retirement, has negative effects on the
government budget. Pensioners now makeup over 50% of welfare spending. The retirement age will have to continue to rise and the government is trying to encourage people to save for their own pensions.

64
Q

how does wage inequality cause labour market issues?

A

Over time, those on the highest wages have seen their wages grow by a bigger percentage than those on the lowest wages. This is a contentious issue and raises questions over relative poverty and the level of redistribution required.

65
Q

how does zero hour contracts cause labour market issues?

A

There has been a rise in zero-hour contracts and this causes problems for employees who do not know how much they will earn a week and receive little notice of when they will be required to work.

66
Q

how does the “gig economy” cause labour market issues?

A

Many more people are now self-employed and undertake short term contracts, working for companies such as Uber and Deliveroo. There are concerns over the rights of these workers and the unreliability of their pay each week.

67
Q

how does migration cause labour market issues?

A

Many people suggest that migration causes a fall in wages but it allows employers to recruit from a larger pool of workers and helps to fill skills shortages.

68
Q

how does the government intervene to stop labour market issues?

A

National minimum wage, Maximum wages, Public sector wage setting, Tackling immobility

69
Q

what is the national minimum wage?

A

it is the minimum amount a worker can be payed for an hours work. it is designed to raise people out of
poverty and decent minimum standards in the workplace

70
Q

what are the arguments for a national minimum wage?

A

Able to reduce poverty as it mainly impacts the lowest wages, Reduce male/female wage differentials as women are more likely to take up lower paid jobs, A more content workforce who will be more motivated and, thus making the business more productive and increasing its profits. Provides an incentive to work and prevents the ‘unemployment trap’, when benefits are higher than the wage.

71
Q

what are the arguments against a national minimum wage?

A

the potential loss of jobs in the industry, raise costs for the companies and so may increase their prices, which is liking to lead to a fall in profit. wage spiral as individuals will try to protect wage differentials between them and the lowest price workers. no consideration of regional differences, many people on minimum wages are secondary earners

72
Q

what are evaluation points for minimum wage?

A

The impact of any minimum wage will depend on where it is set, and whether this is above or below the current wage. The level of job losses is dependent on the elasticity of supply and demand. If both are relatively elastic, there will be large job losses but if both are relatively inelastic, the losses will be small.

73
Q

how does the government use maximum wages?

A

The government can set maximum pay limits for public sector workers in order to keep public sector spending down. It will help to reduce inequality.

74
Q

what is the effect of a maximum wage?

A

it will lead to excess demand within the industry,
since people may not put themselves forward for the job if they don’t think the salary matches the stress and responsibilities or they know they could get higher wages abroad. The UK may suffer from a loss of the best workers , which will reduce the quality of businesses and decrease competitiveness.

75
Q

what impacts the scale of the effects of maximum wage?

A

depends on the elasticities of supply and demand: inelastic means there will be little impact. It is argued that supply and demand for the highest paid workers, such as chief executives, is very inelastic since there is a small supply of chief executives and firms only need one chief executive so their cost is a very small part of total costs. This could mean maximum wages will have almost no effect on the market, other than causing a reduction in wages.

76
Q

how much power does the government have in wage setting in the short run?

A

Since trade unions in the UK are weak, in the short run, the government can effectively make whatever wage decisions it decides in order to improve the budget.

77
Q

how has the private sector benefitted of the governments wage setting power?

A

Between 2010 and 2015, public sector workers experienced a pay freeze. This put downward pressure on private sector wages since few people were likely to leave the private sector for the public sector and private sector employers could use this as evidence to limit pay rises for their workers.

78
Q

how much power does the government have in wage setting in the long run?

A

in the long run, if private sector workers receive pay rises and public sector workers don’t, people will move from the public sector to the private sector and this will force the government to increase public sector wages in order to expand supply.

79
Q

what is the relationship between wages in public and private in the long run?

A

the wages of public and private sector workers tend to rise by the same percentage over a long period of time

80
Q

what is the relationship between wages in public and private in the short run?

A

in the short term they can rise by different

rates.

81
Q

what ways can a government improve geographical immobility?

A

improve the supply of houses and reduce the price of properties, improve transport links, National advertising could be used so people know about jobs all over the country, subsidies on houses,

82
Q

what ways can a government improve the occupational mobility of labour?

A

Vocational training can be increased, encourage further study, encourage greater spending on training within work, Education could be targeted at improving skills shortages and helping with job applications, encourage flexible work patterns which will allow more parents to work, discrimination in the labour market could be reduced

Economics (19 decks)

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