3.5.3 Government Intervention into Labour Markets Flashcards
What are the 4 ways the government can intervene into labour markets?
- minimum wage
- maximum wage
- public sector wage setting
- policies to tackle labour immobility
What is a minimum wage?
A legal floor of what a firm can give to a worker in terms of wage
Where does a minimum wage sit on a labour market diagram?
Above the competitive equilibrium
What happens to the demand for labour following the implementation of a minimum wage?
Demand for labour falls from Q to Q1.
What happens to the supply of labour following the implementation of a minimum wage?
Supply of labour rises from Q to Q2
What is the level of unemployment following the implementation of a minimum wage?
Difference between Q1 and Q2
What does the level of unemployment after a minimum wage depend on?
- 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
What is a maximum wage?
A legal ceiling on what a worker can be paid
When were maximum wages used in the UK?
In the 1970s in order to control inflation
What happens to the demand for labour following the implementation of a maximum wage?
Demand for labour rises from Q to Q2
What happens to the supply of labour following the implementation of a maximum wage?
Supply of labour falls from Q to Q1
Are maximum wages effective? (3)
- skilled people will not put themselves forward for stressful jobs
- CEOs may move abroad to find higher paying jobs
- impact depends on elasticities
How can public sector wage setting be used as a form of government intervention into labour markets?
Government has a major power of wages in both the public and private sector. Public sector trade unions are weak meaning even more control.
What two things can the government do to change wages in the public sector?
- pay rises
- pay freezes
What do public sector pay freezes do to the private sector?
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
What does labour immobility to do the market?
Leads to
- unemployment
- workers in temporary employment
- workers in a job that doesn’t utilise their skills
Give 5 policies that can be used to tackle labour immobility
- improve education and training
- subsidise employers
- provide housing
- increase knowledge of job opportunities
- reduce discrimination
What are the two types of labour immobility?
- geographical
- occupational
Give 3 arguments for the raise of the minimum wage?
- increases fairness
- encourage firms to make their workers more productive to compensate for cost
- increases tax revenues for government
Give 3 arguments against the implementation of a minimum wage?
- causes unemployment
- disproportionately affects small firms
- causes slow growth in small firms
