3.5.2 Wage rates Flashcards
1
Q
demand for labour
A
How many workers employers are willing and able to hire at a given wage rate in a given time period
2
Q
monopoly
A
Single seller of a good with no close substitutes
3
Q
factors that affect supply of labour
A
- Birth and mortality rates
- Low in developed economies and part of Asia
- Falling but still high in africa india etc
- Education and skills training - human capital
- Elasticity of skills → more specific, more inelastic
- However can cause occupational immobility of labour
- Womens rate of participation in the labour market
- Ease of migration
- Monopsony power of firm → eg NHS → decrease wage rates as they want lower costs
- Power of trade unions/employers association
- BMA and young doctors 25% pay rise7
- Countervaling power to make an impact on NHS/Gov
- However only helps if negotiations are respectful and resolve the issue, not if disputes take a long time
4
Q
factors that affect demand for labour
A
- Incomes and spending power - aggregate demand
- Depends on firm and G/S → in a recession aldi/lidl may need more workers as they sell inferior products
- Increasing wage rates
- Leads to offshoring/outsourcing
- Increased capital use → substitute workers for this → advanced economies with higher labour costs usually mechanise production
- Employment taxes increasing → eg National Insurance
- Shifting patterns of consumer demand led by fashions, tastes or new product development
- Economic cycles - recessions reduce demand for labour
- Developing countries demand depends on foreign developed consumers
- Price of capital equipment → if it falls employers will substitute capital for labour and vice versa
- Ability to access capital → changes due to structural change, increased investment and machine means you can use more technology and employ less labour eg using AI
- Technological change
- Structural change from an emerging manufacturing economy to a developed service economy
- Labour intensive or capital intensive
5
Q
why might firms keep workers if it is cheaper to be more capital intensive
A
- Higher productivity can lead to higher revenue to pay workers, so you do not need to automatically lay off workers
- HIGHER PROD = HIGHER WAGE
Not all workers can be substituted (eg dentistry, hairdressing) - AI and financial services; human workers are more thorough → firms gain CA and keep high reputation associated with high quality output
6
Q
excess demand of labour
A
- As supply of labour decreases firms increase wages
- As wage increases, demand for labour decreases as thsi increases costs
- Some firms may pay higher wages but cause redundancies
- If MARKET controls wages like HGV drivers, they can increase their wages to attract more workers to solve the disequilbrium
- If GOV controls, there is no flexibility for low wags to rise like NHS staff, so excess demand is not solved
7
Q
how can excess demand have a long run effect in an economy
A
- Causes structural change
- Tech and AI is developed to replace low skilled workers
- Eg analysing data and programming
- Causes structural unemployment as it replaces jobs
8
Q
excess demand and structural change
A
- Structural change means that some areas find that demand for their traditional products is falling
- These areas will suffer from unemployment (industrial areas) and underemployment (agricultural) → excess supply of labour
- When structural changes are under way, skilled people may find that their particular skills are obsolete and it may take time for them to find new jobs
- Work they find may be less paying and will involve moving to a new region
- Developments in tech and trading arrangements very often disrupt employment, excess supply of labour may develop
9
Q
excess supply
A
- Migrant workers and effect on supply of labour
- Supply increases and graph shifts to the right
- Downward pressure on wage rates
- Demand for labour extends as wage falls; cannot go below minimum wage in UK
- In unofficial economy → people work without work visas eg
- Do not need to be paid minimum wage
- Gig economy (uber etc) costs of gigs increase so they have a more stable income
10
Q
effects of excess supply of labour
A
- Rising unemployment
- More long term unemployed
- Need to acquire new skills
- Or go where labour is in demand
11
Q
how can you rectify excess supply
A
- Rising unemployment in specific sectors is easier to deal with if the people affected are occupationaly or geographically mobile
- Transferable skills help
- Flexible labour markets exist where people are capable of adapting to changing patterns of demand
- Multiskilled workers have little issues with change as they are already part of a flexible workforce
12
Q
why are unskilled people at an disadvantage
A
- Expect reasonable pay but potential employers may be offshoring production to economies where wage rates are lower
- However some things cannot be offshored eg dentistry, hotel service etc
- Many unskilled people are competing in this way with people in emerging economies
- To find work they need as much training as they can
13
Q
training and employability
A
increasing productivity
- Multi-skilling makes employees more flexible
- If they are not needed for one job they can do a different one
- Helps businesses to adapt
Works like trasnferabel skills
- Skilled people can find a similar jobs in different businesses
- Skilled earn more thna unskilled
14
Q
excess demand for people with qualifications
A
- Skills shortages will cause growth
- Economic growth requires rising productivity, people who can find new processes and cost effective production
- Rely on availability of skilled people
15
Q
problems with global competition in the labour markets
A
- Global competition can increase wages and prices where scarce resources and scarce skills present problems
- Competition in global labour market to recruit best people for the job
- UK business difficulty in getting highly qualified people: importance of being able to recruit from abroad to get and mosrt productive
- BREXIT: stricter migration
- Competition to have products at best value for money → businesses that cannot innovate fast enoug to stay competitive
- There is competition to access scarce resources → some govs try to ensure access → Chinese FDI in Africa to access scarce resources
16
Q
recessions reducing labour demand
A
- 2008-9 Financial C increased unemployment
- Creates unemployment for all
- Low skilled workers will have hardest time finding work
- Redundancies occur most often in recessions
17
Q
redundancies and unemployment
A
- When a business cannot compete
- Business can close down or cut production costs → closing down may cause all employees to be made redundant
- Cutting production costs may involve either new equipment - capital investment - or new ways of working like lean production
- Can be achieve by retraining employees and not recruiting new ones for a while → numbers employed fall gradually by natural wastage
- Trade union members with few or no skills may have high risk of redundancy
18
Q
elasticity of labour demand
A
- Elasticity of labour demand
- More likely to replace workers with capital if more elastic
- Labour intensive job → inelastic demand (need workers always)
- Product: are consumers prepared to pay higher prices
- SUPPLY → occupational mobility of labour
- Higher demand and inelastic supply → higher wage due to a small potential pool of labour
- Opposite for high supply lower skilled, especially with migrant worker pool
19
Q
trade unions and professional bodies
A
- Trade unions act on behalf of the members to safeguard interest by negotiating pay and ensuring good working conditions
- Important for people who work for MNCs/large companies that cut costs by saving on pay and conditions
- Single rep rely on skilled union negotiators powerful enough to protect them
- Profesh bodies work in the same ways
- BMA etc
- Can restrict number of people joining the profession etc medicine
20
Q
developed economies and trade unions
A
- Developed economies, employees protected by law and regulation, fewer people join trade unions
- In EE and pasy, TU were vital and prevented unethical businesses behaviour, like exploitation of labour and dangerous working conditions
21
Q
power of trade unions and professional bodies
A
- TU and Profesh Bs can push pay more than a certain level, can constrain competitiveness,
- Business may close
- Efforts to opposed introduction of new tech and innovation can prevent increase in efficiency, even if it protects jobs in short term
- Reduces business’ competiveness, profitability and ability to offer higher pay/jobs in long term
