3.5.3 Wage Determination Flashcards
How does elasticity affect the impact of a NMW
The more elastic the firms demand is the more unemployment will be created as firms are very sensitive to the price change.
The more elastic the supply of labour is, the more unemployment will be created as the higher wages will attract many more workers but there isn’t demand for it.
Explain 3 labour laws that protect workers from monopsony power in labour markets
- National Minimum Wage regulates the minimum amount that a worker can be paid
- Dismissal laws make it illegal for firms to sack employees or make them redundant without going through the steps to prove that the job is no longer needed rather than the member of staff.
- Discrimination laws prevent firms from treating employees differently
Explain 2 possible solutions to a skill shortage
- Pay more to reduce the excess damage
- Import workers with the necessary skills using immigration laws
Why is youth unemployment more of a problem than unemployment amongst older people?
If workers don’t get a job when they are younger, they may never work and are likely to claim unemployment benefits. - Hysteresis
How does increasing the retirement age affect the labour market?
It increases the labour supply as there are less people leaving the active labour market and the same number of people entering the labour market.
How does increasing the compulsory school age affect the labour market?
It temporarily decreases the supply of labour by a few years as people aren’t able to enter the market earlier anymore, meaning there are less people in the labour market.
Define under-employment
When workers want to work more hours than they are given, and/or over-qualified for that job.
How does the induction of zero-hour contracts affect the labour market equilibrium?
- It could lead to underemployment as workers are technically in jobs, but may not be given any hours
- Reduces job security
- Skills may erode as workers are not able to be in training and education, but are not in a job.
