Current labour market issues

Question 1

Define trade union

Answer 1

Group of workers who collectively bargain to improve employee welfare

Question 2

Explain how trade unions benefit workers

Answer 2

They collectively bargain to improve employee welfare such as more better working conditions or higher wages.

Question 3

Explain poverty trap

Answer 3

Low incomes makes it hard to afford basics like education and healthcare, causing a continuous cycle of poverty

Question 4

Explain unemployment trap

Answer 4

When being unemployed and earning benefits pays more than working

Question 5

Explain gig economy

Answer 5

Short term, flexible jobs, part time instead of full time.

Question 6

Methods of government intervening labour market

Answer 6

1. maximum and minimum wages
2. public sector wage setting
3. policies to tackle labour market immobility

Question 7

How can the government reduce occupation immobility

Answer 7

1. Provide education
2. Provide training and apprenticeship

Question 8

How can government reduce geographical immobility

Answer 8

Improvement in transportation/infrastructure

Provide relocation subsidy

Question 9

Explain why wages in a public sector wage setting is higher than private sectors

Answer 9

1. Pay scales are based on experience and time, private sectors do not guarantee promotions
2. Public sectors are more unionised

Question 10

When does equilibrium wage occur?

Answer 10

When quantity of labour supplied = quantity of labour demanded, leading to a stable and balanced labour market

No excess or shortages
No pressure on wage

Question 11

What causes differential in wage?

Wage between two workers eg

Answer 11

1. Discrimination - gender, race
2. Limited supply of labour
3. risk taking
4. Labour productivity
5. Reward for human capital

Question 12

What’s a minimum wage and maximum wage

Answer 12

A minimum wage paid to all workers, a maximum wage paid to all workers

Question 13

Advantages and disadvantages of national minimum wage to workers

Answer 13

Workers:

1. higher wage -> higher disposable income -> higher standard of living (micro)
2. Unemployment decreases - higher disposable income -> more consumption expenditure -> AD rises -> real gdp rises -> unemployment decreases (macro)

However
2. Wage increase -> quantity of labour demanded drops -> excess supply of labour -> more unemployed

Producers:

higher cost -> lower profit
But
Higher wage -> more motivated to work harder and longer hours -> productivity rises -> AC cost drops -> output increases -> profit increases

Government:

Lower dependency on benefits, more tax revenue from workers
But
May receive lower tax revenue from firms (since fewer profit from higher COP)

Question 14

What effects brought by national minimum wage depend on?

Answer 14

1. PED of products - can firms pass increased cost to consumers
2. State of economy - firms may not be sufficient for NMW during recession
3. Workers may not be motivated
4. Time period and scale of change

Question 15

Advantages and disadvantages of wage cap for workers

Answer 15

Advantages:
1. Reduces income inequality

2. Wage cap below equilibrium leads to increase in quantity of labour demanded

Disadvantages:
1. Reduces incentive to work hard for high ranking employees

Question 16

Advantages and disadvantages of national minimum wage for employers

Answer 16

Disadvantages:

higher cost -> lower profit

But

Advantages:
Higher wage -> more motivated to work harder and longer hours -> productivity rises -> AC cost drops -> output increases -> profit increases

Question 17

Advantages and disadvantages of national minimum wage for government

Answer 17

Government:

Advantages:
Lower dependency on benefits, more tax revenue from workers

Disadvantages:
May receive lower tax revenue from firms (since fewer profit from higher COP)

Question 18

Arguments for and against wage cap

Answer 18

For
1. More equity and fairness, reducing income and wealth inequality -> might improve motivation for workers -> productivity rises
However, top rewards are needed as incentive to work hard, wage cap may make people lazy knowing harder work is not rewarded

2. Pay ceiling leads to sustainable economic growth (inequality damages growth)
   However, difficult to enforce

Against
1. Leads to braindrain of workers to other countries for better pay

2. Reduces FDI as business find pay less attractive -> AD drops

Question 19

What are the conditions of perfectly competitive labour market?

Answer 19

1. Labour is homogenous
2. Many employees and workers
3. Perfect information
4. Perfect mobility of labour
5. No monopsony power