3.5 Labour Markets Flashcards

Question

How does **education** influence the supply of labour

Answer 1

More educated workers means a higher supply of workers in skilled labour or just generally being able to overcome barriers to enter

Answer 2

* Can increase job satisfaction through security and higher wages * Restrict supply of labour by introducing barriers e.g. need degree to teach

Answer 3

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

Answer 4

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

Answer 5

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

Answer 6

they find it difficult to move from one place to another due to the cost of movement, family etc. Those on lower incomes are more geographically immobile.

Answer 7

mmobility 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.

Answer 8

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.

Answer 9

responsiveness of supply to a change in wage rates.

Answer 10

● Higher skill requirement reduces elasticity ● Similarly, it can depend upon the availability of suitable labour in other industries , for example if a company can ‘poach’ workers from other industries, then it will be more elastic ● Moreover, it depends on time as 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.

Answer 11

* Workers may be attracted into industry from related jobs * Workers previously employed in this occupation may be attracted back e.g. they decided to end a period of economic inactivity

Answer 12

1. **Net inward migration** of suitable qualified / experienced workers 2. **Fall in relative pay/earnings** in substitute occupations 3. **Lower entry barriers **to this particular job such as minimum professional qualifications 4. Demographic factors causing a rise in the active labour supply

Answer 13

1. **Brain drain effects** – an economy loses skilled workers overseas 2. **Decline in non-monetary rewards** associated with the job e.g. job dissatisfaction / stress 3. **Fall in relative pay in this occupation compared to other jobs** / rise in min qualifications

Answer 14

Positive income effect: Higher wages --> incentivise to work more hours (to reach a target income) Negative income effect: Target income reaches so higher wages --> incentivises working less hours

Answer 15

* A rise in the real wage increases the **opportunity cost of leisure** * Therefore higher wages will always cause people to be incentivized to work longer hours via the substitution effect But the income effect may work in the opposite direction

Answer 16

Backwards bending supply curve

Answer 17

f a firm can employ each additional worker at the same wage rate, then the average and marginal cost of labour will be the same If the firm has to pay higher wages to attract more workers, then the average cost of labour rises and the **marginal cost of labour will be above ACL**. This is since raising wages for one worker means raising wages for workers

Answer 18

when there are barriers to the mobility of factors of production between different industries leading to these factors remaining unemployed, or being used inefficiently structural UE is when applied to a whole industry

Answer 19

Geographical immobility refers to barriers people moving from one area to another to find work.

Answer 20

* Family and social ties – older people more reluctant to move * Financial costs involved in moving home; no affordable housing, differences in costs * Migration controls e.g. possible caps on inward migration * Cultural and language barriers to living and working overseas

Answer 21

1. Better funding for and more effective workplace training 2. Teaching new skills e.g. Computing skills 3. An expansion of apprenticeship / internship programmes

Answer 22

1. Rise in house-building will help to keep property prices lower and encourage more affordable rents 2. Active regional policy to create new jobs and businesses

Answer 23

1. Higher minimum wage or a living wage 2. Reductions in income tax / national insurance 3. Welfare reforms to reduce the risk of the poverty trap

Answer 24

* age * education * training * work experience * skill/talent/ability to perform tasks * sex * ethnic background.

Answer 25

sex and ethnic background

Answer 26

excess supply in one area/occupation, causing low wages, and not enough workers in another, meaning high wages

Answer 27

* Same assumptions as perfect competition in products * Therefore, wages are determined purely by demand and supply and all workers are paid the same. * If workers were not paid the same, they would simply move somewhere else where the wage rate in the industry was higher. *

Answer 28

there is only one buyer of labour

Answer 29

They will employ to where: Cost of employment (MC) = Value of worker to company (MRP/D) At this quantity they will then use their monospony power to push the wages down to a wage determined by the Supply curve Compared to a perfectly competitive market they employ less people at a lower wage

Answer 30

* Only seller of labour * existence of trade unions through a process of collective bargaining.

Answer 31

1) They could set **barriers of entry **which would reduce supply. Teachers’ unions lobbied for a rule which means that all teachers must have degrees . 2) Alternatively, they could set wages at a specific wage and ensure workers are not prepared to work for less, creating a kinked supply curve as seen in the diagram (the grey line). Supply is perfectly elastic up to output of QS and if the company wanted to employ more than this, they would have to increase wages further. The firm will employ where supply is equal to demand, at QDW2. Both of these methods will lead to higher wages but **cause a fall in employment from the perfectly competitive equilibrium of Q1W1**.

Answer 32

The government has introduced **postal ballots, outlawed secondary picketing, restricted the size of the picket line and forced unions to provide 14 days’ notice of action. ** The Trade Union Act 2016 clause saying that **at least 50% of people must vote in the ballot**

Answer 33

both monospony and monopoly in the labour market

Answer 34

* The firm is a monopsonist and wants to employ at Q2W2. * However, the union may decide to set a minimum wage at W1 and ensure that there is no one willing to work below this price, creating a kinked supply curve. The new MC and AC curves are the purple curves. * The wage that is set will depend on the relative bargaining strength of both . * In a time of economic recession and unemployment the unions may have less bargaining power and wage is most likely to be down at W1. In times of full employment, they may have the power to influence and wages could be at W3 .

Answer 35

they are able to increase wages to W3 without negatively impacting the number of workers. This increase in wages and employment is able to make the economy more efficient. even at W1 that increases employment rather than decrease

Answer 36

1. Skills Shortage 2. Young Workers 3. Retirement 4. Wage Inequality 5. Zero-hour contracts 6. The 'Gig Economy' 7. Migration

Answer 37

Occupational and geographical issues mean there are a lack of engineers shortfall of roughly 59,000 engineers every year.

Answer 38

Rising life expectancy and demographic shift as 'baby boomers' reach retirement Retirement age will have to rise and **pensioners makeup over 50% of welfare spending**

Answer 39

Over time, those on the highest wages have seen their wages grow by a bigger percentage than those on the lowest wages. **wealthiest 100 people in the UK have as much money as the poorest 18 million people**, according to the Equality Trust.

Answer 40

Nearly half (48%) of employers of zero-hours workers said that they do not compensate workers for shifts that are cancelled with less than 24 hours' notice. incentivises a lack of capital investment

Answer 41

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.

Answer 42

people suggest that migration causes a fall in wages With Brexit, drivers are also choosing not to return to the UK, as large numbers of them now prefer "EU stability" and the perspective of higher salaries working in France or Germany. **100,000 shortage in crucial HGV drivers in Septmeber 2022**

Answer 43

a legally enforced lowest salary possible

Answer 44

* **Reduces poverty** and inequality * Reduces gender wage differentials * More content workforce makes the business more productive * Prevents **unemployment trap**

Answer 45

benefits are higher than the wage people would otherwise receive.

Answer 46

1. Classical UE aka Real Wage Inflexibility; dependent on elasticity of supply and demand 2. Cost-push inflation/ lower profits so lower R+D 3. No consideration of regional differences 4. Dependent wether it is above or below current wage

Answer 47

increasing wages can lead to increased labour productivity because workers feel more motivated to work with higher pay. Therefore if firms increase wages – some or all of the higher wage costs will be recouped through increased staff retention and higher labour productivity.

Answer 48

1. Fear of losing jobs – “Shirking model” 2. Loyalty 3. Labour market 'Gift Exchange' 4. Lower costs of supervision 5. Attract higher quality labour 6. Nutritional +healthcare

Answer 49

if workers are paid a relaatively higher wage, they have more to lose from being made redundant. Shapiro and Stiglitz posited that workers with **a higher wage will work at an effort level which involves no shirking**. This wage is above market-clearing levels.

Answer 50

labour market has a ‘gift exchange’ where good labour relations depended on goodwill. FIrms could pay wages above market-clearing levels, and in return, workers would take on more responsibility and initiative.

Answer 51

Rebitzer noted that **lower wages were associated with higher levels of supervision.** Workers receiving higher wages were more motivated and therefore needed less managerial supervision

Answer 52

in 1914 when Henry Ford introduced a five dollar day. Ford paid well above the market-clearing rate. He wanted to pay higher wages in order to: * Ban unions. A condition for high pay was no trade unions * Compensate for boring work on his efficient assembly lines. Ford increased productivity by the revolutionary use of assembly lines, but was worried a low wage, workers would get bored and stop working. Raff and Summers (1986) concluded that Ford’s five dollar day was consistent with what was expected of efficiency wage theories. “There is vivid evidence that the five-dollar day resulted in substantial queues for Ford jobs. Finally, **significant increases in productivity and profits at Ford accompanied the introduction of the five-dollar day**

Answer 53

* In practice, many factors determine worker morale and productivity, wages are just one of them. Often other factors are more important such as work conditions, management * Wages are relative to similar positions by other firms Firms with monopsony power may not need to pay higher wages to create the threat of workers losing their jobs.

Answer 54

A legally enforced limit on a wage

Answer 55

* Help to reduce inequality; max pay ratio to lowest earners * Dependent on elasticities; chief executives are v inelastic so no effect * **Excess demand** within industry --> loss of most productive workers

Answer 56

SR: * Gov. can make whatver wage it decideds e.g. 2010-15 **pay freeze** LR: * To incentivise workers to stay have to stay in line with private sector wage rises

Answer 57

Even if a firm is not a pure monopsony, it may have a degree of monopsony power, due to geographical and occupational immobility’s They will also often have a degree of monopoly selling power

Answer 58

· Supermarkets have monopsony power in buying food from farmers. If farmers don’t sell to the big supermarkets, there are few alternatives. · Amazon.com is one of the biggest purchases of books. If publishers don’t sell to Amazon at a discounted price, they will miss out on selling to the biggest distributor of books.

Answer 59

Thatcher **banned wildcat strikes** (instant strikes) and **secondary picketing** (sympathy strikes) and **introduced secret ballots** to remove intimidation to get workers to strike. TU action can still consist of: - Announced Strikes - Introducing overtime ban - Work to rule (working to the contract and no extra)

Answer 60

* Will likely neogitate productivity deal; changing working practices, training and capital to **increase MRP of the workforce**

Answer 61

Diagram shows that as MRP rises, more workers could now be employed at the TU wage, contrary to the opinion that the TU will increase wage rate at the expense of employment. This should protect against redundancy

Answer 62

TU now enters a monopsony market and through collective bargaining now raises the wage to w/pTU. The agreed wage becomes the standard for the industry/firm, therefore MC = AC = LS. This is because the cost of employing the next worker is the same as the previous, meaning MC is constant and so is AC.

Answer 63

At this wage, QTU workers are prepared to work and the monopsony is happy to employ as MC is below MRP. If the monopsony wished to employ beyond the LS curve kink, a higher wage would have to be offered. In offering a higher wage, all previous workers would have to be paid more and MC would discontinue and go above MRP. Therefore, the firm would not employ beyond QTU.

Answer 64

Nearly half (48%) of employers of zero-hours workers said that they do not compensate workers for shifts that are cancelled with less than 24 hours' notice. incentivises a lack of capital investment

Answer 65

1. **Net inward migration** of suitable qualified / experienced workers 2. **Fall in relative pay/earnings** in substitute occupations 3. **Lower entry barriers **to this particular job such as minimum professional qualifications 4. Demographic factors causing a rise in the active labour supply