3.5.3 Wage Determination in Non/Competitive Markets Flashcards
What is equilibrium market wage rate
How is it drawn on a graph
Intersection of supply and demand for labour
Employees are hired up to a point where the extra cost of hiring an employee is equal to the extra sales revenue from selling their output
What are the main causes of differential in wages between occupations
- Compensating wage differentials - rewards for risky jobs, poor work conditions and unsociable hours
- Reward for opportunity + direct costs of human skill development
- Different skill levels - market demand for skilled labour grows more quickly than lower-skilled
- Differences in productive + revenue creation - will more often lead to higher pay
- trade unions - can allow bargaining power
- Barriers to entry - education + qualifications
- Discrimination - although illegal can skill happen
What is a Gig Economy
People provide a service nearly always through a digital platform
Characterised by prevalence of short-term contracts or freelance
Growth of Gig economy can be traced to impact of last recession
Examples: Uber, Amazon, Hermes, Deliveroo
What are the benefits to a Gig economy
Reduces business fixed costs
Reduced investment + hiring costs
Worked hours can exactly meet demand
Flexibility
What are the drawbacks to a Gig economy
Dount over true flexbility
Low working rights - holidays, pensions, sick leave
Low skilled work
May affect tax revenues
What is an Ageing Population
How can this affect the economy
Large shift in demographic towards older ages
Around 12.4 million people are pensionable age out of 32.5 million working people
Can impact on: patterns of consumer demand, housing market and labour market, Government spending and demand on public services
How does Robotics and Artificial intelligence impact the economy
Productive, costs and profits of firms/ industries at cutting edge
Demand for/supply for labour in specific jobs + real wages e.g automation
Consumer welfare - lower prices leading to greater real income
2013 paper by Oxford academic suggest 47% of jobs are at ‘high risk’ for automation within the next 20 years - especially in finance
How does Labour Migration affect the Economy
Net flow of workers entering the UK labour market has slowed, partly due to Brexit
Can impact: shortages of skilled labour, effect of dynamic efficiency with brain drain + lack of entrepreneurship
What are trade Unions
What is the main purposes of them
use collective bargaining with employers to protect their members
% of employees whom are members of a union in the UK has fall
Role of trade unions include: protecting + improving real living standards/wages, employment rights + conditions
What could possibly be a problem with trade unions
Trade unions may bid for employers to pay a premium wage above the competitive market
This may lead to an excess supply in labour and contraction in total employment
Unions will be more successful when demand for labour is relatively inelastic
However: increasing wages could lead to an increase in productivity
Decline in Union membership can reflect
growing flexibility of the labour market
What are Zero Hour contracts
Contracts that don’t guarantee a minimum number of hours of working each week
Tends to be popular in young, part-time, women and in full-time education
They are liked due to their flexibility
What is the problem with zero-hour contracts
Said to increase ‘in work poverty’
People not working enough hours each week to earn enough to avoid remaining in poverty
Overall effect on welfare and social equality
Explain the gender pay gap
Is the measured difference between male + female earning, expressed as a % of male earnings
It is suggested it is caused by women taking breaks from the labour market when careers take off due to pregnancy
In lower-Middle income countries - there are lower opportunities to gain education for women
Discrimination occurs despite being illegal
If there was discrimination against women in certain industries, explain diagrammatically how this could lead to lower wages
Through Discrimination, it could reduce the supply of female’s in the labour force in some markets, leading to higher wages
This may lead to other industries being more dominated by women, and with high supply of labour, this will bring wages down
What is the elasticity of demand for labour
Measures the responsiveness of labour demand given a change in the wage rate
Formula for elasticity of demand for labour
Reasons for differences in elasticities of demand for labour
SECT
- Substitute of capital for labour - the more wage elastic labour is (cheaper to substitute capital for labour)
- Elasticity of demand for product - more price inelastic demand for product more inelastic demand for labour is (value of work is higher)
- Cost of Labour as % of total costs - greater labour costs as % of total costs the more wage elastic demand is
- Time period - in the long run, all factors of production are variable so labour becomes more elastic
Define Elasticity of supply of Labour
measure of the responsiveness of labour supplied given a change in wage rate
Give for formula to work out the elasticity of supply of labour
Reason for elasticity of Supply of Labour
NVTT
- Nature of skills required - greater skills set required more inelastic
- Vocational element of profession - teaching/nursing - people may not leave the profession with changes in wages - inelastic
- Traning length period - harder for people to enter the profession even with wage increases - inelastic
- Time - in short-run people may not initially move due to having to give notice e.g. (more elastic in the long run)
Intervention to improve labour mobility + incentives
- Subsidisation of training/education/apprenticeships
- Infrastructure including roads/transport systems
- Addressing chronic housing shortages + expensive running costs
- Bigger differences in wages + benefits
- Lowering tax burdens for low income
- Rising national minimum wage
- Subsidisation of childcare
What is the minimum wage
Who is it meant to benefit
legally-enforced pay floor in the labour market
targets rates of pay for the poorest-paid workers and the chart below tracks the median full-time weekly pay of the lowest-earning occupations in the UK
Describe the graph for national minimum wage
Employment would contract (to E2) and supply of labour would expand (to E3)
described as a pay floor
If demand is inelastic what effect will this has on employment compared to an elastic market
If labour demand is inelastic, a higher minimum wage will cause only a limited contraction on the level of labour demand
Reasons for a national minimum wage
- Every job should give a fair pay allowing equitable living standards
- Reduces poverty
- Encourages firms to train more to increase productivity
- Incentive to move into work
- Anti-discrimination - especially in young/female workers
Reasons against National minimum wage
- Increases cost of employment and could lead to higher unemployment (even though there has never been evidence to suggest this)
- Smaller businesses may struggle to make profits/demotivators for start-up
- Better reasons than NMW to train staff better
- UK business may be less competitive globally
- Inflation due to higher business costs
What is a Maximum wage
Cap on the maximum amount top executives can earn relative to median pay of company’s workers
Argument for Maximum wage
- Equity and fairness - growth in executive compared to worker pay, stops growth of super-rich
- Bonus culture encourages short erm decision making rather than longer-term strategies
- High growth in executive pay has lead to large inequalities
Arguments against maximum wage
- Prevent talents executives more to UK
- Businesses locating overseas
- Rewards in otherways
- Impact differently across different industries due to regional living cost difference
- true wages aren’t always reported
What are public sector pay policies
is a single-year policy
It sets out the parameters for pay increases for staff pay remits and senior appointments and applies to public bodies with settlement dates in the year
true of false
Average pay is higher in the public sector than in the private sector.
true
What are the arguments against public sector pay policies
that capping pay rises has led to worsening recruitment problems which now threatens the delivery of public services
impact on the NHS in particular.
