3.5.3 Government Intervention into Labour Markets

Question 1

What are the 4 ways the government can intervene into labour markets?

Answer 1

• minimum wage
• maximum wage
• public sector wage setting
• policies to tackle labour immobility

Question 2

What is a minimum wage?

Answer 2

A legal floor of what a firm can give to a worker in terms of wage

Question 3

Where does a minimum wage sit on a labour market diagram?

Answer 3

Above the competitive equilibrium

Question 4

What happens to the demand for labour following the implementation of a minimum wage?

Answer 4

Demand for labour falls from Q to Q1.

Question 5

What happens to the supply of labour following the implementation of a minimum wage?

Answer 5

Supply of labour rises from Q to Q2

Question 6

What is the level of unemployment following the implementation of a minimum wage?

Answer 6

Difference between Q1 and Q2

Question 7

What does the level of unemployment after a minimum wage depend on?

Answer 7

• difference between new wage and free market equilibrium
• elasticity of demand and supply
• affect different industries, for example the hairdressing industry but not the economy

Question 8

What is a maximum wage?

Answer 8

A legal ceiling on what a worker can be paid

Question 9

When were maximum wages used in the UK?

Answer 9

In the 1970s in order to control inflation

Question 10

What happens to the demand for labour following the implementation of a maximum wage?

Answer 10

Demand for labour rises from Q to Q2

Question 11

What happens to the supply of labour following the implementation of a maximum wage?

Answer 11

Supply of labour falls from Q to Q1

Question 12

Are maximum wages effective? (3)

Answer 12

• skilled people will not put themselves forward for stressful jobs
• CEOs may move abroad to find higher paying jobs
• impact depends on elasticities

Question 13

How can public sector wage setting be used as a form of government intervention into labour markets?

Answer 13

Government has a major power of wages in both the public and private sector. Public sector trade unions are weak meaning even more control.

Question 14

What two things can the government do to change wages in the public sector?

Answer 14

• pay rises

- pay freezes

Question 15

What do public sector pay freezes do to the private sector?

Answer 15

Lower wages in private sector too, people will leave the public sector increasing the supply of labour in the private sector reducing the wages there

Question 16

What does labour immobility to do the market?

Answer 16

Leads to

• unemployment
• workers in temporary employment
• workers in a job that doesn’t utilise their skills

Question 17

Give 5 policies that can be used to tackle labour immobility

Answer 17

• improve education and training
• subsidise employers
• provide housing
• increase knowledge of job opportunities
• reduce discrimination

Question 18

What are the two types of labour immobility?

Answer 18

• geographical

- occupational

Question 19

Give 3 arguments for the raise of the minimum wage?

Answer 19

• increases fairness
• encourage firms to make their workers more productive to compensate for cost
• increases tax revenues for government

Question 20

Give 3 arguments against the implementation of a minimum wage?

Answer 20

• causes unemployment
• disproportionately affects small firms
• causes slow growth in small firms