3.5 Labour Markets Flashcards
What does the demand curve for labour show?
the quantity of labour that employers would wish to
hire at each possible wage rate.
what is the demand for labour determind by?
the marginal revenue product. The higher the MRP the higher the demand for workers vice versa
Derived Demand
demand that comes from the demand of something else
Factors influencing the demand for labour
- wage rates
- demand for the product
- prices of other factors of production
- wages in other countries
- technology
- regulation
- state of the economy
demand for labour as derived demand
Firms hire workers in order to produce goods to meet their aim, usually of making a profit. Therefore, the demand for labour is derived demand as it is derived from demand for the product the labour produces. Businesses only want the worker for as long as people are willing and able to buy the product they produce.
Factors affecting PED of labour:
- depends on the elasticity of the good
- proportion of wages to the total cost of production
- substitutes, such as machinery and labour in other countries, then
the demand will be elastic - time
what does the supply of labour curve show
the ability and willingness of people to make
themselves available to work at different wage rates.
Factors influencing supply of labour
- 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
Market failures in the labour market
- immobility
- elasticity of supply
how does the labour market operate
An increase in wages should attract labour to the industry and a fall in labour should mean labour leaves industry.
two types of immobility
- occupational
- geographical
occupational mobility
- 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.
Geographical immobility
where they find it difficult to move from one place to another due to the cost of movement, family etc.
What can immobility result in
- excess supply of labour in one area/occupation
- excess demand
Elasticity of supply in labour
the responsiveness of supply to a change in wage rates.
What does elasticity of supply depend on
- the level of qualifications and training - if there is a high level of qualifications necessary for the job, the jons are harder to get so the supply of labour will be inelastic.
- the availability of suitable labour in other industries, if workers can be transferred between industries, then it will be more elatic
- time - long run labour will be elastic
why do wage rates differ
Within an occupation due to age, education, training, work experience,
skill/talent/ability to perform tasks, sex and ethnic background.
Wage in perfect competition
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
Monopsony in the labour market
- only one buyer of labour
- if they want to increase labour supply they will have to increase wages
Monopoly in the labour market
- The existence of trade unions means they can operate as the only seller of labour.
- can increase wages by setting barriers of entry to reduce supply or set specific wages where workers wouldn’t work for less.
- higher wages but an increase in wages
Labour market issues
- skill shortages
- young workers
- retirement
- wage inequality
- zero hour contracts
- self-employment
- migration
National minimum wage
Labour introduced the National Minimum Wage in April 1999 to raise people out of poverty and decent minimum standards in the workplace.
Arguments for the national minimum wage:
- reduce poverty, fair wages
- reduce male/female differntials
- loyalty to the business
- more content workforce
- provides incentive to work and prevents ‘unemployment trap’
Arguments against the national minimum wage:
- loss of jobs in industry
- raise costs for companies
- wage spirals
- no consideration of regional differences
maximum wages
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.
What will the introduction of maximum will lead to?
- excess demand
- loss of best workers
public sector wage setting in the short run
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.
Public sector wage setting in the long run
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.
Tackling geographical immobility
- improve supply of houses and reduce prices
- improve transport links
- national advertising
- subsidies in areas with labour shortages
- move public agencies
tackling occupational immobility
- vocational training
- encourage futher study
- ## training within work
