5.3 Microeconomics Labour Markets Flashcards
Labour
A factor of production which uses human capital
Derived demand
Where the demand for a factor of production is based upon the demand for a product.
Demand for labour
Willingness and ability of a firm to hire labour at differnet wage rates.
Wage
The cost of a unit of labour (the marginal cost)
Marginal revenue product of labour
the additional revenue received by a firm as it increases output by using an additional unit of labour input
MPPxP=
Marginal revenue product of labour (MRPL)
Marginal physical product
Amount of additional output produced if the firm increases its labour input by 1 unit (i.e. adding one more person-hour)
MRPL
Marginal revenue product of labour
How does the firm decide how many workers to employ?
Where MRPL=MC (wage rate).
What happens to the demand for labour during a recession?
It falls
Wage elasticity of labour demand calculation
%change in quantity demanded for labour/% change in wage
What does wage elasticity of demand measure?
Responsiveness of demand for labour by firms when there is a change in the wage rate.
What factors affect WEDL?
Proportion of labour costs as % of total costs, ease of factor substitution; PED for final product;time period
What can make WEDL more elastic?
Long run; easier to substitute capital to replace labour; high proportion of labour costs; PED greater than 1 (elastic)
What will happen to the demand for labour if there is a rise in demand for the good?
Shifts right
What will happen to the demand for labour if labour becomes more productive.
Shifts right
Increases MRP so labour becomes more cost efficient compared to capital.
What happens to the demand for labour if capital equipment becomes cheaper?
Shifts left.
What is the supply of labour?
The number of houses people are willing and able to work at a given wage rate.
What is the relationship between labour and supply- positive or negative?
Positive- as wages rise, more people enter the labour market.
What influences the supply of labour?
Wage rate, nonpecuniary conditions; amount of training; migration; fliexibility and location; age structure; attitude to work.
What are demographics?
Proportion of different age groups and men and women in the whole population
What does non-pecuniary mean?
not consisting of money
What non-pecuniary factors can affect the supply of labour?
Working conditions, amount of leisure time, facilities at work, ability to work flexible hours, career progression opporutnities, extent of autonomy given in the job.
Wage elasticity of labour supply
the responsiveness of the quantity of labour supplied to a change in the wage rate.
Formula for WESL
%change in the quantity of labour supplied/ the %change in the wage.
What factors affect the WESL?
Nature of skills required to work in an industry; length of training; if the work is vocational; time period
Why might people be unwilling to move to a new job?
family; financial costs; regional variations in house prices; cost of renting; mirgration controls; cultural and language barriers; transport costs.
Why might people be unable to swap into a new industry?
Skill gaps; training gaps; exsperience gaps; confidence and motivational problems; discrimination
What is structural unemployment?
Where workers have the skills from obsolete industries and so are unable to work in new and growing industries.
What can limit the supply of labour and act as a discincentive to work?
Marginal rate of tax; high benefit payments; poor child care options
What are the assumptions of a perfectly competitive labour market?
Many workers and firms, all of whom are homogenous; no worker or firm can influence the wage rate; no barriers to entry; perfect information; firms can employ as much labour as they like at the prevailing wage rate.
Monopsony employer
Sole or dominant employer in the labour market
Who is more powerful in a monopsony market?
The monopsony employer because they have buying power over the employees.
What are the causes of labour market failure?
Monopsony, trade union; discrimination, geographical and occupational inflexibilities
What is economic rent?
Any amount above the minimum need to keep a factor of production in its current use.
What are transfer earnings?
The minimum amount needed to keep a factor of production in its current use.
Wage differentials
Differences in wages between workers with different skills in the same industry or those with comparable skills in different industries.
Trade Union
Collection of workers usually in the same or similar industry that collectively bargains for the workforce on issues like fairness of pay, working conditions or benefits.
Bilateral monopoly
Labour market that includes a trade union and a monopsony
Labour market flexibility
The ability of workers to move between occupations and indsutries in order to respond to changes in wages and conditions of work.
Mobility of workers
Ability of workers to move geographically or occupationally to respond to change in wages and conditions of work.
