3.5 Labour Markets Flashcards
What does the demand curve for labour illustrate?
The amount of labour firms are willing to employ at each given wage rate over a period of time
What is derived demand?
Derived demand is when the demand for one thing (often labour) is directly correlated to the demand for the another thing (the goods and services the labour can provide)
What are 6 factors which affect the demand for labour?
Wage rates
Wages in other countries
Technology
Regulation
Demand for the good or service
Cost of machinery
What is PED of Labour?
The responsiveness of quantity demanded for labour In a response to a change in the wage rate
What factors affect the PED of labour?
PED for the product
The availability of substitutes (machinery)
The amount of time (long term its elastic due to greater ability to buy machinery)
The wages in other country
What is does the supply of labour curve illustrate?
The ability and willingness of workers to work at each given wage rate over a period of time.
What are the 7 factors which affect the supply of labour?
Wages
Non Monetary benefits
Population size and age
Regulation
Other jobs
Trade Unions
Educational systems
What determines the demand for labour?
MRP, the additional revenue that firms will gain from hiring one extra worker
What is the formula for calculating MRP?
Marginal Product * Marginal Revenue
What point will firms hire labour until?
MRP=W
What are criticisms of MRP?
It is hard to determine productivity
It is also hard to determine the MRP of one specific worker as they often work in teams
It doesn’t take into account self employed
Trade unions can force firms to increase wages which distorts this theory
What causes a shift in the labour demand curve?
Anything which will increase or decrease MRP
What is the positive and negative income effect?
As wages rise, incomes rise therefore causing a worker to reach their target income. If it is positive it will mean they will work more to reach this target income but if this is negative it means workers will work less as they have reached this target income
What is the substitution effect?
As wages rise, the opportunity cost of leisure time increases thus providing an incentive to work.
What is the wage effect?
As incomes rise, workers decide how much they want to work, if they wish to work more then it is positive, if they want to work less it is negative.
Explain the backward bending labour curve?
It is a curve for an individual. At the start, wages are low so the opportunity cost of leisure time is low, so the substitution effect is positive but low and individuals are far from their target income, so an increase in income will lead to more hours worked so the wage effect is positive. Then as wages start to rise, workers get closer to their target income so the rate at which the curve slopes up decreases, but opportunity cost of leisure is still increasing, so the wage effect is still positive. However as incomes get really high, workers have reached beyond their target incomes so work less (income effect is negative) and the opportunity cost of leisure time is still increasing and is so large that workers stop working as many hours.
What do monopsony supply curves look like for labour?
MC and AC are both upward sloping and MC is twice as steep as AC
What are the factors which affect the elasticity of supply of labour?
Skills required for the job
Training period
Vocation and non pecuniary benefits
Time
What are the characteristics of a perfectly competitive labour market?
Labour is homogenous
There is perfect information
Firms are wage takers
No barriers to entry or exit
Many workers and employers
Why do wage differentials occur?
Trade unions
Immobility of labour
Labour is not homogenous
Non monetary benefits and monopsony power
Why do women tend to get paid less than men?
Women may be seen by employers as more risky to employ as if they can have children and that represents a large amount of time they will have to be paid a salary and not be contributing to the workforce so their MRP is lower, meaning they are more likely to be paid less as a result.
Why do footballers get paid more than teachers?
Their MRP is very high because the additional utility that they provide to football club is so large that their salary as a proportion is small, but teachers provide low MRP, there is also a monopsonist employer in the UK and there is a reluctance of teachers to strike due to the effect it can have on pupil performance. Supply of footballers is extremely inelastic which means as demand is extremely high, wages are proportionally higher
Why do people in the South of England get paid more than those in the North?
In the South there are more advanced services industries such as financial services but in the north there is the prevalence of manufacturing so in the south they will get paid more
Labour is a derived demand and as demand is lower up north then it means that wages will be lower
High immobility of labour in the north of England
Immigration only comes into the south as it is the most prosperous area in the UK
Why do ethnic minorities get paid less than ethnic majorities?
They may be less qualified and therefore have less skilled meaning that their MRP is low so their wages are low
There may be a language barrier present so they may not be able to access high income professions which are client facing therefore require English proficiency
They may live in poorer parts of the country and refuse to migrate to earn high wages for cultural reasons
Discrimination
What are the reasons for a minimum wage?
Everyone receives a fair and regulated amount of income meaning governments can ensure that everyone can maintain a decent standard of living
Helps to reduce the wage differentials between men and women
Helps to avoid the unemployment trap
Reduces income inequality
What are the reasons against a minimum wage?
It can cause significant job losses
Firms costs will rise, therefore causing less competition and less efficiency
It also affects those who aren’t the lowest income earners as it means there is an expectation that their wages increase as well
There is no regard for regional disparities, apart from US India Brazil and Germany
