3.5 - Labour Markets Flashcards
Demand for labour
Quantity of labour that employers would wish to hire at each possible wage rate
Derived demand
Demand for a factor of production or a resource that occurs as a result of the demand for the final goods or services that the resource helps to produce
Factors influencing the demand for labour
- Wage rates
- Demand for the product
- Prices of other factors of production
- Wages in other countries
- Technology
- Regulation
Factors affecting Price Elasticity of Demand for labour
- Price elasticity of demand for the product, 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
- Proportion of wages to the total cost of production
- Amount of substitutes, such as machinery and labour in other countries
- Time, 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
Supply of labour
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 and qualifications
- Trade unions and barriers to entry
- Wages and conditions of other jobs
- Legislation
Occupational immobility
Difficulty or inability of workers to move between different types of jobs or industries due to a lack of necessary skills, qualifications, or experience. This can occur for various reasons, such as limited education, training, or specific industry experience, preventing individuals from transitioning to different types of work or sectors
Geographical immobility
Difficulty or inability of workers to move from one location to another in search of employment opportunities. This can occur due to personal, economic, or social reasons that prevent individuals from relocating to areas where jobs are available
Wage differentials
Variations in wages or salaries that exist between different workers, jobs, industries, regions, or countries. These differences are often due to various factors such as skills, experience, education, occupation, and location, as well as supply and demand for labor in different markets
Bilateral monopoly
Market situation in which there is only one seller (monopoly) and one buyer (monopsony) of a particular good or service
Labour market issues
- Skills shortages
- Young workers
- Retirement
- Wage inequality
- Zero-hour contracts
- Migration
National minimum wage
Legally mandated minimum hourly wage rate that employers must pay their workers. It is set by the government to ensure that workers are compensated fairly for their labour and to prevent exploitation by employers who might otherwise offer wages that are too low for workers to meet basic living standards
Arguments for the national minimum wage
- Able to reduce poverty as it mainly impacts the lowest wages and ensures that these people have enough to live on
- Can reduce male/female wage differentials as women are more likely to take up lower paid jobs (because they are vocational, offer more flexible hours etc.) and so a minimum wage is able to decrease the gaps between men and women
- May make employees less likely to leave their job as they feel more loyal to the businesses, which will decrease labour turnover, and therefore recruitment and training costs
- Can create 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 people would otherwise receive
Arguments against the national minimum wage
- Potential loss of jobs in the industry
- Will 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. An increase in the wage of the lowest paid will mean that others expect theirs to rise too. This will reduce profit and further reduce competitiveness
Maximum wage
Legal limit on the amount of income an individual can earn, which is set by the government. The idea is to prevent excessive income inequality by capping the wages of the highest-paid individuals in a society, often to address concerns about social justice and fairness
Potential strategies the government can use to improve geographical mobility of labour
- Improve the supply of houses and reduce the price of properties making it easier for people to move
- Improve transport links which will allow people to work further away from where they live and if they do move, it will be easier for them to visit family and get to job interviews
- Introduce subsidies on houses, taxes etc. in areas where there are labour shortages to encourage people to move to the area and take up jobs
Potential strategies the government can use to improve occupational mobility of labour
- Vocational training can be increased, particularly for younger students
- Encourage further study, such as university or technical courses at college
- Encourage greater spending on training within work
- Education could be targeted at improving skills shortages and helping with job applications, for example interview skills
- Investment in education to help to make the workforce more employable and better at a wider range of jobs
