5. Labour Markets

Question 1

What does demand for labour show

Answer 1

The quantity of labour that employers would wish to have at each possible wage rate

Question 2

How is the demand for labour derived

Answer 2

It is serviced from the demand for the product the labour produces, the firms only want the labour for as long as people are willing and able to buy the product they produce

Question 3

Factors influencing demand for labour

Answer 3

Wage rates
Demand for the product
Prices of other factors of production
Tech
Regulation

Question 4

PED of labour

Answer 4

Responsiveness of demand to a change in wage rate

Question 5

Factors influencing PED of labour

Answer 5

-price elasticity of demand for the product
-proportion of wages to the total cost of production
-substitutes
-time

Question 6

What does supply for labour show

Answer 6

The ability and willingness of people to make themselves available to work at different wage rates

Question 7

Factors influencing the supply of labour

Answer 7

-wages
-population and distribution of age
-non-monetary benefits
-education/training/qualifications
-trade unions and barriers to entry
-wages and conditions of other jobs
-legislation

Question 8

What is occupational mobility

Answer 8

Workers find it difficult to move from one job to another due to a lack of transferable skills (especially in the SR, LR they can undergo training)

Question 9

Geographical immobility

Answer 9

Workers find it difficult to move from one place to another due to cost of movement, family etc

Question 10

What can immobility cause

Answer 10

An excess supply of labour in one occupation/area and an excess of demand in another

Question 11

What is PES of labour

Answer 11

Responsiveness of supply of labour to a change in wage rate

Question 12

Factors effecting PES of labour

Answer 12

-level of training and qualifications required
-availability of suitable labour in other industries
-time (sr inelastic, lr elastic)
-vocation

Question 13

What can wages differ with

Answer 13

Age
Education
Training
Experience
Skill/talent/ability
Sex (illegal)
Ethnic background (illegal)

Question 14

In perfect comp, what are wages determined by

Answer 14

Purely by supply and demand and all workers are paid the same

Question 15

What happens in perfect comp if people aren’t paid equally

Answer 15

Labour will move elsewhere where they can be paid higher wages

Question 16

In a monopsony, why is the mc curve above the ac

Answer 16

If you raise one persons wage, you must raise everyone’s, therefore employing one more additional worker costs more than the average cost of labour

Question 17

Where does employment occur

Answer 17

Where mc=d

Question 18

Where are wages set in a monopsony

Answer 18

Where the q of mc=d meets the ac curve

Question 19

How can monopolies increase wages

Answer 19

1) set barriers to entry, lowering supply
2) set wages to a specific rate and ensure workers are not willing to work for less

Question 20

What is a bilateral monopoly

Answer 20

Where there is both a monopoly and monopsony in a labour market

Question 21

Issues with the labour market

Answer 21

Skills shortages
Young workers
Retirement
Wage inequality
Zero-hour contracts
The ‘gig economy’
Migration

Question 22

Pros of the minimum wage

Answer 22

Reduce poverty
Reduce wage differentials
incentive to work
increased productivity
government fiscal benefit
counter monopsony employers

Question 23

Cons of the minimum wage

Answer 23

-unemployment (however if inelastic then it has less effect)
-the youth lose out the most due to lower MRP
-those not on minimum wage want a wage increase to keep their wage differential (they may see their job as higher skilled)
-increased cost for businesss
-regional differences (more expensive to live in the south)

Question 24

How can you tackle immobility

Answer 24

Improve the supply of houses
Improve transport links
National advertising
Vocational training
Encourage further training
Training with work

Question 25

why is the individual supply of labour curve backwards bending

Answer 25

-as wages increase at a lower wage, people work more time to increase their income
-as wages rise, the opportunity cost of not working rises until target income is reached
-beyond their target income, the worker substitutes their possible earnings for leisure

Question 26

shifts of labour demand

Answer 26

change in price of product
change in demand of product
change in productivity
change in price of capital

Question 27

shifts in labour supply

Answer 27

wages in substitute occupations
barriers to entry
non-monetary characteristics
changes in occupational mobility
overtime
size of working population
value of leisure time

Question 28

wage differentials

Answer 28

-labour is not homogenous (different MRPs, different supplies, discrimination)
-non-monetary considerations (compensating wage differentials)
-labour is not perfectly mobile (occupational/geographical immobility, lack of perfect knowledge)
-trade unions
-monopsonies and wage setting abilities

Question 29

men vs women wage differences

Answer 29

-women out of labour force due to pregnancy
-age where women leave labour force tends to be the pivotal age where promotions are most common
-difference in education
-women may tend to work in lower-paid occupations

Question 31

north vs south divide

Answer 31

-restructuring of the economy after war
-different demands for labour (increased demand for services)
-negative multiplier effect for the industries in decline
-occupational and geographical immobility in the north
-higher skilled workers in the north may migrate south leaving lower skilled workers behind

Question 32

pros of wage differentials

Answer 32

-incentives
-tricle down effect
-encourages enterprise
-encourages work, non benefits
-promotes efficient resource allocation

Question 33

cons of wage differentials

Answer 33

-income inequality
-trickle down effect may not occur
-government solutions are limited if they are a monopsonies employer