Government intervention in the labour market Flashcards
Why do gov’s intervene in the labour market?
to reduce inequality and market failure
1 how might gov intervene in the labour market?
Minimum wages
The minimum wage sets a legal floor below which employers cannot pay. The minimum wage is designed to help increase the income of the low-paid
What brought about the minimum wage?
The decline of trade unions,
A rise in part-time temporary work
And a rise in monopsony power of employers.
What are the drawbacks of a minimum wage?
The disadvantage of a minimum wage is that it increases costs for employers and could lead to lower levels of employment as some firms will not be able to afford to pay the higher salary.
2 how might gov intervene in the economy?
Maximum wages
In theory, the government could set a maximum wage. Up until January 1961, British footballers had a maximum pay of £20 a week – set by the Football Association (not the government).
However, maximum wages have been proposed as a way to limit executive pay. For example, the government could set a limit where the maximum salary for a firm is 20 times the lowest pay. Firms may complain this would make it harder to attract the best staff to important positions.
3 how might a gov intervene in the economy?
Legislation against discrimination
e.g. In 1970, the UK passed the Equal Pay Act which outlawed paying different wages for the same job on the grounds of sex
4 how might gov intervene in the labour market?
Trade unions legislation
Some governments, e.g. Conservative from 1979-91 sought to reduce the power of trade unions. Mrs Thatcher believed trade unions had too much power and caused economic inefficiency
Other economists argue that trade unions can help increase labour productivity and provide a counter-balance to monopsonist employers
5 how might gov intervene in the labour market?
Maximum working week
A maximum working week is designed to limit excess work. Governments may also hope a maximum working week could reduce unemployment. The theory is that if workers have fewer hours, the firm will need to employ more workers. France experimented with a maximum working week of 35 hours but in practice, the effect on unemployment was disappointing.
6 how might gov intervene in the labour market?
Behavioural nudges
A new form of economic policy is government nudges to change behaviour. A good example of this is the policy to encourage take up rates of private pensions. By making a private company pension a default opt-in – the government has significantly increased take up rates of private pensions.
7 how might a gov intervene in the labour market?
Government provision of education and training schemes
Perhaps the most important type of government intervention. The government provide basic education for free. This provides a more skilled workforce to increase labour productivity and overcome market failure.
In addition to academic education, there is a strong case for the government to provide more vocational training and support for apprenticeships which help bridge the skills gap in the economy and overcome market failure in under-provision of training schemes for workers.
