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✅👁️Y2 Economics Micro > 4.1.6 — Labour Market > Flashcards

4.1.6 — Labour Market Flashcards

1
Q

What are some characteristics of a perfectly competitive labour market?

A
  • employees are wage takers — no monopsony power
  • jobs are easily accessible
  • no trade union power
  • homogenous labour supply
  • perfect knowledge
  • no government intervention
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2
Q

Equation for average cost of labour?

A

Total wage costs
——————————
No. Workers employed

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3
Q

Define marginal costs of labour

A

Addition to a firms total cost of production resulting from employing one more worker

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4
Q

Define marginal revenue product

A

Addition to sales revenue resulting from employment of one extra worker

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5
Q

What type of wage do employees in a perfectly competitive labour market have to accept?

A

Ruling market wage

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6
Q

Define derived demand

A

Where demand for labour is derived from the demand for the final product

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7
Q

What is the marginal revenue product / what does it measure?

A

Marginal revenue product (MRP) measures the monetary value of the addition to a firms output brought by employing one more worker (marginal physical product — MPP)

(The goods price in a perfectly competitive market)

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8
Q

What is the equation for marginal revenue product?

A

MRP = MPP x MR

MPP = marginal physical product
MR = marginal revenue

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9
Q

How many people should a firm employ?

A

Firms are assumed to be profit maximisers, and so they would choose a level of employment which maximises profit

MRP = MCL

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10
Q

What 3 factors would shift demand for Labour rightwards in a perfectly competitive labour market?

A
  1. Increase in labour productivity (MPP)
  2. Higher demand for final product
    (Labour demand derived)
  3. Change in technology
    (Increased productive efficiency, reduces costs, lowers prices)
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11
Q

Define the elasticity of demand for Labour

A

The proportionate change in demand for Labour following a change in wage rate

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12
Q

What is the formula for wage elasticity of demand for Labour?

A

% change in QD of labour
————————————
% change in wage rate

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13
Q

Under what conditions will demand for Labour be inelastic?

A
  • when relevant wage costs only form a small part of total production costs
  • when demand for the good / service being produced by the labour is inelastic
  • substitutability for capital
  • in the short run demand is inelastic because it takes time for a firm to adjust its method of production
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14
Q

What are some non monetary benefits that companies will grant their employees?

A
  • job security
  • good working conditions
  • holiday entitlement
  • promotional prospects
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15
Q

What are some monetary benefits that companies can grant their workers?

A
  • pensions
  • bonuses
  • commissions
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16
Q

What could be a non-monetary cost to a company for employees?

A

Dissatisfaction when working I.e lack of job security

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17
Q

What is the equation for the elasticity of supply for Labour?

A

% change of QS of Labour
————————————
% change in wage rate

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18
Q

Define elasticity of supply of labour

A

The proportionate change in the supply of Labour following a change in wage rate

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19
Q

What are some factors that determine the elasticity of supply for labour?

A
  • qualifications and skills
  • length of training
  • immobility of Labour
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20
Q

Define wage differentials

A

When there are differences in wages between workers with different skills in the same industry, or between workers with comparable skills in different industries or localities

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21
Q

What are some factors which account for wage differentials?

A
  • reward for human capital
  • different skill levels
  • differences in labour productivity and revenue creation
  • circumstantial factors: degree of risk, unsociable hours etc
  • trade unions — collective bargaining power
  • employer discrimination
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22
Q

What are 3 determinants of elasticity of demand for labour?

A
  1. The availability of good substitutes
  2. The proportion of labour costs out of total costs
  3. The elasticity of supply of substitute inputs
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23
Q

Supply of Labour to a particular occupation is influenced by monetary and non-monetary considerations. What are some non-monetary considerations?

A
  • job satisfaction / dissatisfaction
  • working conditions
24
Q

What does the supply curve for Labour show?

A

The relationship between the wage rate (y-axis) and number of workers willing to work in an occupation (x-axis)

25
Q

What factors would shift the market supply curve for labour?

A
  • wage rate (right)
  • demographics of population (right)
    The more people who are able to work = higher supply
  • migration (right)
    Usually working age — supply of Labour at all wages increases
  • advantages of work (right)
    Non monetary benefits etc act as incentive for workers
  • leisure time (left)
    Part time work / early retirement is attractive for some people
  • trade unions (left or right)
    Could attract Labour to the market as employment rights will be defended, however limitations on strike might cause workers to withdraw
  • taxes and benefits
    If taxes are too high people might withdraw from the market
26
Q

What is labour market equilibrium (perfectly competitive labour market)

A

The labour market is a factor market:
Supply of Labour is determined by those who want to be employed (employees), whilst the demand for Labour is from employers

Equilibrium: where supply of labour and demand for Labour meet
(Aka WAGE RATE)

27
Q

What are ‘sticky wages’ coined by Keynes?

A

How wages in the real labour market are not this flexible: wages don’t adjust to changes in demand.
Minimum wage makes wages sticky: in a recession rather than lowering wages employees get sacked instead

28
Q

What is monopsony power?

A

When there is only one buyer of Labour in the market, yet many sellers (employees) — this firm has the ability to set wages

29
Q

When a monopsony power employs another worker, are marginal costs or average costs higher and why?

A

Marginal costs are higher

Because in order to employ another employee the firm has to pay all of their workers more

30
Q

What is a trade union?

A

Organisation made up of workers / members who aim to protect and advance the interests of its members in the workplace

Ie.
- negotiate agreements with employers on pay and conditions
- discuss members concerns with employers
- provide legal and financial advice
I.e UNISON, TUC

31
Q

Why may there have been a decline in the number of trade unions?

A
  • decline in engineering
  • costs
  • increased tertiary / office based work
  • relevance
  • media reporting
32
Q

Factors affecting the effectiveness of trade union power against employers

A
  • elasticity of demand for the product
  • level of profitability in the industry
  • degree of competition in product market
  • substitutability of capital of Labour
  • level of public support
  • economic conditions
  • degree of unionisation
33
Q

How can trade unions instigate higher wages?

A

Members can limit Labour (i.e by performing strikes or closing firms) which threatens employers to raise wages. More workers will supply themselves at a higher wage

Although this would cause unemployment, trade unions can counterbalance exploitative monopsony power

34
Q

Since the trade union act 2016,

Why would a government wish to restrict the actions of a trade union?

A
  • reduce number of days lost to action
  • limit their political influence
  • as part of supply-side reforms to encourage employment and promote productivity
35
Q

Since the trade union act 2016,

What economic benefits might result for the employer from trade unions?

A
  • lower costs through more flexible Labour supply
  • reduced union power allowing the employer more bargaining strength through negotiations
36
Q

Since the trade union act 2016,

How might union membership be affected?

A
  • less power — fewer members
  • unions suffer with bad image / perception when calling for action
  • law restricts union activities
37
Q

Since the trade union act 2016,

Who might suffer as a result of the act?

A
  • trade union employees may lose their jobs
  • members won’t benefit as much from collective strength in negotiations
  • employees may receive lower pay and conditions
38
Q

How could imperfect information contribute to imperfections in the labour market?

A
  • Qualified workers may be unaware of higher paying jobs in other paying industries / with other firms
  • Some workers may not see the benefit of investing in improving their skills and education

The can limit productivity and therefore makes the market inefficient

39
Q

How can monopsonies uses market power to reduce wage rate and the level of employment compared to a perfectly competitive labour market?

A

As marginal costs reach equilibrium with marginal revenue product, the firm profit maximises at a reduced number of workers. This makes the wage lower than the market equilibrium competitive wage.

The employment and wage rates are lower than those that would exist in a perfectly competitive labour marker

40
Q

What factors may affect a trade unions ability to counter balance a monopsony?

A
  • % of workers in union
  • ability to substitute labour for capital
  • rate of unemployment in economy
  • worker support from public
41
Q

What is the national minimum wage?

A

Has to be set above the free market price, like other minimum prices otherwise it would be ineffective

42
Q

What is a benefit of the National minimum wage?

A

It will yield the positive externalities of a decent wage, which will increase the standard of living for the poorest and provide and incentive to work

43
Q

What are some drawbacks of the National minimum wage?

A
  • it could make it harder for young people to find a job because their lack of experience might not be valuable to firms paying higher wages
  • Gov might make more tax revenue due to people earning higher wages
  • higher wages could make the country less competitive on a global scale since they can’t compete with countries that have lower wages
44
Q

What is discrimination?

A

Unjust or prejudicial treatment of different categories of people or things especially on the ground of racism, age or sex

45
Q

How does discrimination lead to a fall in productivity and labour market failure?

A

Employees who are discriminated against have little incentive to work — employers employ people who they’d feel comfortable working around, not necessarily who is the best or most fit for the job

This leads to increased costs as productivity is low which gets put onto consumers

46
Q

What are the effects of discrimination?

A
  • inefficient allocation of resources
  • consumers face higher prices
  • inequitable wage differentials
  • increased costs of production
  • consumers discriminating will face higher prices
47
Q

How can discrimination be reduced in the labour market?

A

If wage rates are raised for minority groups then incentive rises alongside productivity so there will be less spare capacity in the economy (PPF) as FOP are utilised more (labour)
More goods can be outputted which reduces costs for consumers

48
Q

Does discrimination affect demand or supply?

A

Both!

Demand:

Demand curve is below where it should be / shifted leftwards as employers will demand fewer workers from minority groups at any given wage rate

Supply:

Potential workers may be discouraged from entering the workforce due to discrimination

49
Q

Why do women get paid less than men despite ‘equal pay laws’?

A
  • career breaks
  • fewer hours worked than men
  • less engagement / demand from the public
  • women are crowded into low paid and part time roles
  • women discriminated against when it comes to promotions
50
Q

What is a bilateral monopsony?

A

When a monopoly trade union negotiated with a monopsonies. Wage rates will be determined by relative bargaining strengths of each side

51
Q

What is Labour demand affected by?

A
  • wage rate
  • demand for products
  • productivity of Labour
  • substitutes for Labour
  • firm profitability
  • number of firms in market
52
Q

How is supply of Labour calculated?

A

Number of workers willing and able to work at the current wage rate x number of hours they can work

53
Q

What factors influence the supply of labour to a particular occupation?

A
  • wage rate
  • population demographics
  • migration
  • advantages of work
  • leisure time
  • trade unions
  • taxes and benefits
  • training
54
Q

How is Labour market equilibrium determined?

A

Where the supply of labour and the demand for Labour meet, which determines the equilibrium price of labour i.e wage rate

55
Q

What factors may affect the ability of trade unions to influence wages and the level of employment in different labour markets?

A
  • If trade unions try and increase wages too much, firms may no longer be able to afford to employ workers causing then the sack people or close
  • some workers might prefer a low paid job rather than be without employment
56
Q

Why may workers be paid different amounts for the same job?

A
  • formal education
  • skills, qualifications and training
  • pay gaps
  • wages and skills
  • gender
  • discrimination

✅👁️Y2 Economics Micro (6 decks)

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