3.5 Labour Markets

Question 1

What does the demand curve for labour show?

Answer 1

the quantity of labour that employers would wish to
hire at each possible wage rate.

Question 2

what is the demand for labour determind by?

Answer 2

the marginal revenue product. The higher the MRP the higher the demand for workers vice versa

Question 3

Derived Demand

Answer 3

demand that comes from the demand of something else

Question 4

Factors influencing the demand for labour

Answer 4

• wage rates
• demand for the product
• prices of other factors of production
• wages in other countries
• technology
• regulation
• state of the economy

Question 5

demand for labour as derived demand

Answer 5

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.

Question 6

Factors affecting PED of labour:

Answer 6

• 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

Question 7

what does the supply of labour curve show

Answer 7

the ability and willingness of people to make
themselves available to work at different wage rates.

Question 8

Factors influencing supply of labour

Answer 8

• 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

Question 9

Market failures in the labour market

Answer 9

• immobility
• elasticity of supply

Question 10

how does the labour market operate

Answer 10

An increase in wages should attract labour to the industry and a fall in labour should mean labour leaves industry.

Question 11

two types of immobility

Answer 11

• occupational
• geographical

Question 12

occupational mobility

Answer 12

• 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.

Question 13

Geographical immobility

Answer 13

where they find it difficult to move from one place to another due to the cost of movement, family etc.

Question 14

What can immobility result in

Answer 14

• excess supply of labour in one area/occupation
• excess demand

Question 15

Elasticity of supply in labour

Answer 15

the responsiveness of supply to a change in wage rates.

Question 16

What does elasticity of supply depend on

Answer 16

• 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

Question 17

why do wage rates differ

Answer 17

Within an occupation due to age, education, training, work experience,
skill/talent/ability to perform tasks, sex and ethnic background.

Question 18

Wage in perfect competition

Answer 18

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

Question 19

Monopsony in the labour market

Answer 19

• only one buyer of labour
• if they want to increase labour supply they will have to increase wages

Question 20

Monopoly in the labour market

Answer 20

• 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

Question 21

Labour market issues

Answer 21

• skill shortages
• young workers
• retirement
• wage inequality
• zero hour contracts
• self-employment
• migration

Question 22

National minimum wage

Answer 22

Labour introduced the National Minimum Wage in April 1999 to raise people out of poverty and decent minimum standards in the workplace.

Question 23

Arguments for the national minimum wage:

Answer 23

• reduce poverty, fair wages
• reduce male/female differntials
• loyalty to the business
• more content workforce
• provides incentive to work and prevents ‘unemployment trap’

Question 24

Arguments against the national minimum wage:

Answer 24

• loss of jobs in industry
• raise costs for companies
• wage spirals
• no consideration of regional differences

Question 25

maximum wages

Answer 25

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.

Question 26

What will the introduction of maximum will lead to?

Answer 26

• excess demand
• loss of best workers

Question 27

public sector wage setting in the short run

Answer 27

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.

Question 28

Public sector wage setting in the long run

Answer 28

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.

Question 29

Tackling geographical immobility

Answer 29

• improve supply of houses and reduce prices
• improve transport links
• national advertising
• subsidies in areas with labour shortages
• move public agencies

Question 30

tackling occupational immobility

Answer 30

• vocational training
• encourage futher study
• ## training within work