3.5.2 Wage rates Flashcards
What are the 4 factors influencing the supply of labour
- migration
- NMW
- trade unions
- income tax/welfare benefits
Explain migration
Greater migration into the country means the supply of labour increases especially those who migrate into the country looking for any type of employment.
Explain NMW
Through government regulations to stop the exploitation of workers through low pay, they may decide to introduce a NMW. This is an example of a minimum price control and will increase the supply of labour as it pushes wages higher than equilibrium and cannot legally fall below this level.
Explain trade unions
Being a member of a trade union can allow for greater quality of working conditions and even greater pay through collective barganing. Other methods may be used such as a work to rule e.t.c. This will give labourers more power and will increase the supply of labour.
Explain income tax/ welfare benefits
Reduced income taxes will increase the supply of labour as a greater incentive to work due to gretaer tx-free income which will increase their levels of disposable income. Likewise reducing welfare benefits will increase the incentive to be employed, a tactic which may be used by the government to reduce levels of unemployment.
vice versa if income tax increass or if welfare benefits increase
What are other factors which can affect the supply of labour?
Positive substitution effect where workers see an increase in wages so decide to substitute some of their working hours for leisure time.
However this shows the negative income effect between income and work, as wages rise the supply of labour falls
What is the importance of skills, training and education?
Skills and training of workers means that labour immbolity can be reduced as workers have the required skills to move between jobs as theyre human capital is relatively high through educations. This reduces friction unmeployment helping the government achieve thier objective of unemployment. However another importance of it is that with higher skills of workers, labour immboility increases so greater number of workers can supply their labour as so reduced chances of market failure in the labour market as resources can be efficiently allocated wehere as with high labour immobility, workers cant supply their labour as efficiently which would lead to allocative inefficiency within the labour market resulting in market failure.
What factors can affect the demand for labour?
- Wages
- demand for products
Explain demand for products
Demand for labour is derived meaning it can heavily be influenced by the demand fro the products the firms are selling. When a firms sees an increase in demand for its products, then their supply needs to increase in order to meet market equilibrium and to increase their supply, they may need to employ more. Elasticity of demand for labour is also directly linked to the elasticity of demand for the products.
This concept can be shown diagrammtically side by side, demand for good increasing so demand labour increases
Explain impact of a recession on employment/wage rates
During a recession, AD is low and economy experiences stagnation. AD and consumption is low with high output gaps in the economy as a result the fall in sales and profits means greater rdundancies and the demand for labour will significantly fall. Thus excess supply of labour created within the labour market causing wages to fall.
What are the impacts of globalisation wage rates?
Globalisation has allowed global firms to cut wage costs by moving to developing countries where wages are not as high. Global competition thus has a negative impact on wage rates.
How do trade unions affect wage rates?
Use collective barganing power to negotiate a more premiuim wage or ‘wage mark-up’. As a result, this causes the supply of labour to increase.
Monopsony firms are those who are the only demand for a particular type of labour (only firm who employ that specific labour type). Since no other firm is demanding that labour, they have the power to set wages significantly low causing for inefficieny within the labour market. Trade unions will try to negotiate higher wages to at least the equilibrium level. Since monoposony firms have the greater power over their employees, they will set their wages below the marginal revenue product (the revenue gained when an additional unit of labour is employed) in order to profit maximise. As a result, this can lead to workers being exploited hence trade unions will try to bargain higher wages.
