3.5 Labour Markets

Question 1

Demand for labour is derived demand

Answer 1

-labour is not wanted for its own sake, but for what can be produced with it

Question 2

Factors affecting aggregate demand for labour

Answer 2

The AD for labour is also derived demand-it depends on the level of economic activity
-if the economic is growing, and firms are optimistic, then employment will likely rise (due to an increase in AD)
-thw reverse is also true (employment will fall if economy is tanking)

With advances in tech and improvements in education and training, it may take fewer workers to satisfy the level of AD

Question 3

Factors affecting a firms demand for labour

Answer 3

How many workers or working hours a firm seeks to employ is influenced by a number of factors:
-the demand and expected future demand for products produced, and the revenue that can be earned from the output. This is the key influence
-productivity
-wage rate
-complementary labour costs
-substitutes for complements to labour

Question 4

The marginal product of labour is

Answer 4

the change in total output that results from employing one more worker

Question 5

The marginal revenue product of labour is

Answer 5

the change in the firms total revenue resulting from employing one more worker

Question 6

benefits of marginal revenue product as a way to determine demand for labour

Answer 6

-make sure you aren’t loosing money on workers
-make sure each worker is making a profit
-can change factors to see impact
-quick to make
-focuses managers on improving productivity
-focuses on reducing MRP=MCL
-hiring until MRP=MCL is sensible

Question 7

limitations of marginal revenue product as a way to determine demand for labour

Answer 7

-doesn’t take un alternate factors like waste/errors
-doesn’t take into account of quality
-based in assumptions
-labour isn’t all the same
-lot is estimated
-productivity can’t be measured this way in all jobs e.g. tariff warden, pilot
-assumes comp labour market and product market
-some jobs are not determined by market forces e.g. gov/public sector
-efficiency wage theory states that paying higher wages will increase efficiency and improve morale
-not everyone is paid the same

Question 8

derived labour is

Answer 8

labour wanted for what can be produced with it

Question 9

elasticity of demand for labour calc

Answer 9

% change in QD of labour/ % change in wage

how responsive QD of labour is to changes in the real wage rate

Question 10

factors affecting the elasticity of demand for labour

Answer 10

-the greater the proportion of labour costs to total costs then the bigger the effect of wage rise. The greater the % of labour costs to total costs the more elastic demand for labour will be
-if labour is a big percentage of total costs, then little changes in price will be highly affect the demand due to them being elastic, so if price increases then quantity will decrease
-ease and cost of factor substitution: labour demand is more elastic when a firm can substitute easily and cheaply between labour and capital input
-If e.g. Labour the businesses would just easily switch to capital therefore elastic
-time: hard to replace labour in short run (in elastic), but easier in the long run (elastic)
-In the short run businesses have to take higher labour cost, but in the long run, you would find a way to reduce labour costs
-The price elasticity of demand for the goods and services themselves. Pricey elastic to result in elastic demand for labour. Demand for labour demand for a product. Demand for product elastic equals demand for labour, elastic or inelastic equals inelastic

Question 11

Supply of labour

Answer 11

Labour is supplied by workers who exchanged their physical/mental efforts in exchange for wage/salary. The amount of wages that is supplied depends on the willingness of the worker and the situation.

Question 12

Factors that will affect the supply of labour

Answer 12

Conditions in the work place
Job security
Hours
Wages
Current minimum wage
Wage rate in other occupations
Overtime
Entry barriers
Geographical immobility
Migration
Risk

Question 13

Income effect

Answer 13

Due to high wages, the worker will be able to reach their target wage by supplying a few hours of labour. This may prompt the workers to work fewer hours and gain more leisure time

Question 14

Substitution effect

Answer 14

higher wages a worker will Subsitute Lesisure time to supply labour .

Question 15

Pecuniary benefits

Answer 15

Means money, and therefore this context means wage rate and salary

Question 16

Non-Pecuniary benefits

Answer 16

-Hours (part-time, full-time, flex, full-time, long hours)
-The firm (reputation, market share, performance, training)
-career opportunities (career, development, roots, chain for promotion)
-Holiday and quality of life
-Location (close to home, work from home, cost of community)
-Job security and perks
-skills and qualifications
-Training (can be a large incentive)

Question 17

Geograaphical immobility

Answer 17

Workers may choose not to move out of an area in order to supply their labour. Usually because of these factors:
-cost of moving (firms sometimes have to pay this)
-Higher cost of living in the new area
-higher house prices in the new area
-reluctance to leave family and friends
-children settled in school
-Language barriers
-imperfect information about the job available in different areas

In all cases, it result in the work of being unable to apply their labour to meet demand, and therefore labour market failure occurs

Question 18

Occupational immobility

Answer 18

Workers build skills, knowledge and experience throughout their lives. These are often within a narrow area and therefore workers find it difficult to move to different occupations:
-Lack of qualifications, training, education and skills are all barriers
-Lack of work experience
-Requirement of some professions to be member of a professional body e.g. ACA

Due to this inability to move freely, because of these barriers, they will struggle to supply the labour if demand for occupation/skills, set falls

Question 19

Gov policies to correct immobility of labour

Answer 19

-investment in training programs to increase the number and quantity of them
-retaining ageing workforce by: improving conditions and rates of pay or flexible working, part time etc
-retain ageing workers by raising the retirement age
-change industry image and restructure e.g. appeal to more females
-provide info on career path and opportunities
-improve infrastructure and transport

Question 20

Business policies to correct immobility of labour

Answer 20

-recruitment from overseas e.g career fairs and trade journals
-retain ageing workforce by: improving working conditions and rates of pay or flexible working, part, time, etc
-Investment in training programs to increase human capital and productivity
-information on career and opportunities, e.g. by marketing programs on their website

Question 21

Elasticity of supply of labour

Answer 21

% change in QS of labour / % change in wage

How responsive QS of labour is to change in the wage rate

Question 22

Factors that effect the supply for labour

Answer 22

-The skills qualifications needed for the job e.g. doctor
The supply of skilled workers is more elastic than the supply of unskilled workers

-The mobility/inability of labour (geographical and occupational)
The workers find it to move from one area to another. The more elastic supply will be.

-The length of training. The training takes the more elastic supply will be e.g. Workers may be put off by the length or the cost of training.

-The time period. Short run VS long run. supply will be more elastic with the long the time period involved

Question 23

Ad of min wage

Answer 23

-help decrease poverty
-offers a greater incentive to work
-can generate a multiplier effect on consumption
-reduce labour turnover in bus
-NMW can help reduce monopolies/monopolistic power
- less benefits given out as more people in employment

Question 24

Dis of national min wage

Answer 24

-may lead to job losses due to wage rate diagram
-what level will the gov set it at?
-discourage bus to hire new staff
-higher bus costs may be passed onto consumers and reduce comp
-inflation
-doesn’t take into account the cost of living in different areas

Question 25

Wage determination

Answer 25

Wages are determined by supply and demand in a comp market

Question 26

Ad of max wage

Answer 26

-reduce inequality
-Firms can earn more as they have less cost
-How many people make enough money to be affected by the maximum level?
-Reduces excess pay

Question 27

Dis of max wage

Answer 27

-workers wouldn’t be intensived or motivated
-how much is too much? What level of income do you have to make?
-Not enough supply to meet demand
-Everyone would pay a similar amount of tax so less tax collected
-could work around maximum level E.G.get paid in stock, not money