3.5.3

Question 1

Labour market equilibrium

Answer 1

Determined by where the supply of labour and the demand for labour meet

Question 2

What happens if the demand for labour falls

Answer 2

In a free market the wage rate would fall

Question 3

What happens if the supply of labour increases

Answer 3

The wage rate would fall

Question 4

Keynes ‘sticky wages’

Answer 4

Wages in an economy do not adjust to changes in demand
The minimum wage makes wages sticky and means that during a recession, rather than lowering wages of several workers, a few workers might be sacked instead

Question 5

Wage differentials

Answer 5

Formal education
Skills, qualifications and training
Pay gaps
Wages and skills
Gender
Discrimination

Question 6

The impacts of migration on labour markets

Answer 6

• there could be more competition to get a job due to the rise in the size of the working population
• migrants tend to bring high quality skills to the domestic workforce, which can increase productivity and increase the skill set of the labour market, increases global competitiveness
• migrant labour affects the wages of the lowest paid in the domestic labour market, by bringing them down
• the skills of migrant labour could substitute those of the domestic market, so workers could be replaced

Question 7

What was the employment rate in the UK aim December 2014

Answer 7

Peaked at 73.2%
Then fell to 70.1% during the period of financial crisis

Question 8

What is the unemployment rate now as of February 2015

Answer 8

5.4%

Question 9

What happens if consumers are unemployed

Answer 9

They have less disposable income and their standard of living may fall as a result

Question 10

What does unemployment create

Answer 10

Creates an opportunity cost to society, since workers could have produced goods and services if they were employed
Could also be negative externalities in the form of crime and vandalism

Question 11

What is hysteresis and how is it related to youth unemployment

Answer 11

This is a type of structural unemployment
When someone is out of work for a long time so their skills deteriorate
They might not want to work at all as an adult

Question 12

Minimum price

Answer 12

The national minimum wage is and example of minimum price
The minimum wage has to be set above the free market price, just like other minimum prices, otherwise it would be ineffective

Question 13

Link between unemployment and national minimum wage

Answer 13

There has been no evidence of a rise in unemployment with a rise in the national minimum wage so far in the UK
Some firms say the national minimum wage is relatively low

Question 14

Externalities of the national minimum wage

Answer 14

The national minimum wage will yield the positive externalities of a decent wage, which will increase the standard of living of the poorest, and provide an incentive for people to work

Question 15

Maximum wage

Answer 15

Limits how much income someone can earn
Used by a means to redistribute wealth more equitably in society
Maximum wages must be set below the free market equilibrium wage to be effective
Maximum wages control the market wage, but this could lead to government failure if they misjudge where the optimum wage should be
It could lead to more equal distribution of wealth in society

Question 16

Government interventions in the labour market

Answer 16

-Maximum and minimum wages
-Public sector wage setting
-Policies to tackle labour market immobility
-Trade union power
- regulation
- welfare payments and income tax rates
- training
- infrastructure
- housing

Question 17

Public sector wage setting

Answer 17

The public sector is the compilation of industries owned by the government

Question 18

Is public sector pay higher or lower than private sector

Answer 18

The public sector pay is higher than the private sector in raw terms
In 2008-2010, public sector grew by 4.5% relative to the private sector 1%

Question 19

Flexibility of the labour market

Answer 19

The flexibility of the labour market is how willing and able labour is to respond to changes in the conditions of the market
It is important for labour to be able to adjust to changes in demand, and it is vital for the supply side of the economy

Question 20

Trade union power

Answer 20

If trade unions are pushing for higher wages, the labour market is likely to be more flexible
Trade unions can also increase job security

Question 21

Regulation

Answer 21

The more freedom firms have to hire and fire workers and the more freedom workers have in terms of their rights, the more flexible the labour market
Excessive regulation limits flexibility

Question 22

Welfare payments and income taxes

Answer 22

The reward for working should be high

Question 23

Training

Answer 23

More widely available training opportunities and a more skilled workforce makes the labour market more flexible

Question 24

Infrastructure

Answer 24

Improving infrastructure might help the geographical immobility of labour, since it becomes easier to move around the country

Question 25

Housing

Answer 25

If housing becomes more affordable, then people might be more able to move around the country for work, which improves the geographical mobility of labour

Question 26

Policies to tackle labour market immobility

Answer 26

Trade union power
Regulation
Welfare payments and income tax rates
Training
Infrastructure
Housing

Question 27

How is the wage rate and level of employment affected

Answer 27

By shifting the demand or supply curve differently

Question 28

What happens to wage rate and level of employment if labour demand is inelastic

Answer 28

Because there are few or no substitutes, strikes will increase the wage rate but not affect the employment rate significantly
When there is an inelastic demand for labour, a lower supply will lead to a higher increase in the wage rate

Question 29

What does the the Elasticity of demand for Labour measure

Answer 29

Measures how responsive the demand for labour is when the market wage rate changes

Question 30

What is the elasticity of demand for labour affected by

Answer 30

• how much labour costs as proportion of total costs
• the easier it is to substitute factors
• the PED of the product also affects labour

Question 31

The elasticity of supply of labour

Answer 31

Is the responsiveness of the quantity of labour supplied to a change in the wage rate

Question 32

What is the elasticity for supply of labour affected by

Answer 32

• the skills of the workforce
• length of training
• sense of vocation
• time period