4.1.6 labour markets Flashcards
what is the substitution effect
higher wages make work more attractive than leisure meaning as wages rise their is more quantity of labour
what is the income effect
higher wages mean target income can be accquired quicker so as wages rise their is reduced supply of labour
NY taxi driver dilemma
on a rainy day more people need taxis so wages are higher and thus their is higher quantity supplied however drivers hit target wage and then go home reducing supply of labour
what would neoclassical economists say about wages and labour
homo economicus will work more as wages increase
what would behavioural economists say about wages and labour
their is value in leisure time so wages only increase the quantity of labour to an extent
net effect of substitution and income effects depend on
strength of income or substitution effect
type of leisure
contractual obligations
why is labour supply upward sloping
as wages rise it incentivises people to work
reservation wage
lowest wage person is prepared to accept
factors that affect elasticity supply of labour
barriers to job eg qualifications
risk or danger doing job
working conditions
occupational mobility
geographical mobility
imperfect info
anxiety
elasticity supply of labour formula
% change in labour/ % change in wage rate
factors increasing supply of labour
- reduction in welfare benefits
- inwards migration
- increased mobility of labour
factors decreasing supply of labour
- emmigraion
- insufficient education
- less favourable working conditions
why is the market demand for labour curve downward sloping
as wages decrease firms can afford to employ more workers
formula for elasticity of demand for labour
percentage change in q of workers/ percentage change in wage
factors influencing demand for labour
- number of firms in market
- demand for the good or service
- tech innovations
- productivity of labour
factors affecting elasticity of demand for labour:
- cost of training new workers
- how easy it is to replace workers with capital
- firms objectives eg profit vs ethics
- sector eg water is necessity
- laws around redundancy
- elasticity of good
- percentage of total costs
marginal physical product
addition to total product as a result of employment of one extra unit
marginal revenue product
addition to total revenue received as a result of the employment of one extra unit of labour
calculate marginal revenue product
marginal physical product x price
criticisms of MRP theory
- imperfect info
- ignores how units of labour impact each other
- assumes workers are homogenous
- difficult to measure in certain occupations
- firms buy capital to fit their workforce
why does MC=AC in a perfectly competitive labour market
every worker is paid the same wage because workers are homogoneous
characteristics of a perfectly competitive labour market
homogenous workers
perfect information for workers and employers
each worker is paid the same wage rate
no barriers to entry or exit
large number of small producers
wage takers
perfect mobility of labour
what is a monopsony
when a firm is the only buyer of a factor of production
why is MC > AC in an imperfectly competitive labour market
the employer, often a monopsonist, must increase wages for all workers, not just the new hire, to attract additional labor, thus increasing the cost of each additional worker
what is a trade union
an organisation that aims to protect workers
“a collective association of workers whose aim is to improve the pay and conditions and uphold the shared interests of its memebrs”
examples of trade unions
NUM (mining)
RMT (railway)
BMA (medical)
actions of trade unions
negotiation, collective bargaining
petition
go slow
work to rule (exactly to contract)
strike (withdraw labour)
aims/roles of trade unions
lobby for higher pay
provide legal protection or advice
support employees during redundancy/dismissal
lobby for terms and conditiosn
factors that reduce the influence of trade unions
media coverage eg thatcher filmed miners from police perspective
bans on secondary picketing
bans on open ballots
50+% of members must vote
acts of parliment 1980-1992
