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Economics Micro nozza > Labour Demand > Flashcards

Labour Demand Flashcards

1
Q

Labour demand

A
  • driven by demand for goods that labour would produce - derived demand
  • marginal productivity theory states the demand for any factor of production depends on its marginal revenue product
  • in perfectly competitive market, wage determined by market equilibrium wage (not firm). Graph indicates quantity of labour firm needs to be most cost effective
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2
Q

Labour demand - graph analysis

A
  • when MRP = Market Equilibrium wage (MC), firm has optimum number of workers to max profits
  • when MRP>MC, firm could increase profits by employing more workers
  • when MRP revenue
  • as MR is constant, MPP curve and MRP curve same shape. MPP curve downward sloping due to law of demising returns
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3
Q

Productivity

A
  • if wages increase but accompanied by increased productivity, unit labour cost stays the same and demand for labour is unaffected
  • high unit labour costs suggest there’s low productivity -> reduce a country’s international competitiveness
  • if increase in labour productivity happens to competing firms too e.g. due to tech, a firms relative competitiveness won’t change
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4
Q

MRP curve affected by

A
  • change to the price of goods sold -> shifts to left
  • factors that affect labour productivity -> e.g. new training or tech
  • increases to costs of labour -> shift to left
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5
Q

Elasticity of demand for labour

A

% change in quantity of labour demanded / % change in wage rate

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6
Q

Factors that influence is

A
  • demand for labour more elastic in long run -> firms can make plans for future to replace labour
  • if labour can be substituted easily by capital -> elastic
  • if wages small proportion of firms cost -> inelastic -> wage increase little impact on costs
  • larger PED of a firms product -> more elastic demand will be
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7
Q

Labour supply

A
  • for individual - number of hours person is willing to work at given rate
  • for occupation - number of workers willing to work at given wage rate
  • as wage rate for occupation rises, quantity of labour supplied rises
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8
Q

Factors affecting labour supply

A

1) - pecuniary (monetary) and non-pecuniary factors -> determine welfare gained by working (net advantage)
- pecuniary benefits - the welfare gained from the wage a worker receives
- non-pecuniary benefits - welfare a worker can gain from non-wage benefits of their job. - firms offering these can encourage workers to supply more labour at given wage rate. Can cause supply curve to shift
2) Size of working population in an area of the country as a whole
3) the competitive of wages - firms that pay poor wages will struggle to attract enough labour
4) the publicising of job applications - may be difficult to attract significant workers if not advertised properly

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9
Q

Factors that affect the elasticity of the labour supply

A
  • the level of skills and qualification needed for a job: 1) -> in low skilled jobs, supply tends to be elastic -> theres large pool of low skilled workers and many may be unemployed looking for work 2) -> there are similar wage rates therefore if one job increases wage rate -> attract more workers -> skilled jobs, supply inelastic, particularly in SR - takes time to get qualifications
  • mobility of labour - if workers occupationally mobile, then wage rises will cause greater increases in supply of labour -> more elastic
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10
Q

Net migration of labour

A
  • EU supports free movement of labour between states
  • > increases supply of labour and help alleviate shortages of skilled workers
  • > can help with increased demand for seasonal workers e.g. in agriculture
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11
Q

Monopsony labour market

A
  • theres a single employer, so workers have only one choice of employer to work for
  • employer can pay wage thats less than worker’s MRP and less than what wouldve been paid in perfectly competitive labour market. Monopsonist employers can also drive down level of employment below perfectly competitive labour market
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12
Q

Monopsony labour market graph analysis

A
  • MC > AC curve -> cost employing 1 worker > AC. MC > AC due to each time extra worker hired, firm has to increase existing workers’ wages to same as new worker
  • AC = number of workers willing to work at that wage
  • monopsonists are price makers
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13
Q

Trade Unions

A
  • an organisation formed to represent interests of a group of workers
  • purpose is to bargain with employers and get best outcome for its members. Members of trade union have increased bargaining power compared to individual workers
  • can be collective bargaining or productivity bargains
  • can have role in making sure workers are safe and any laws about working conditions are adhered to
  • can help protect workers from discrimination
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14
Q

Collective bargaining

A
  • when trade union negotiates with employer

- can be done on national level or at plant level

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15
Q

Productivity bargains

A
  • where unions agree to specific changes that’ll increase productivity in return for higher wages or other benefits for its member
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16
Q

Trade Union History

A
  • most powerful when large membership. At peak in 1979. TUs in UK more powerful and had around 13 million members.
  • during 1980s, Thatcher and tories acted to reduce power of TU -> saw this as supply-side policy -> would help make UK industry more flexible and competitive
  • de-industrialisation in 1980/90s -> sharp fall in TU membership
  • workers on flexible contracts and part time workers less likely to join TU -> modern trends in economy reduce TU membership
  • since mid 1990s TU membership has remained stable at 7 million
17
Q

Causing unemployment

A
  • can cause labour market failure -> forces wages up to level higher than market equilibrium wage -> surplus of labour. Some of firm’s income redistributed to workers and it’s cost of production increase
  • may not cause unemployment -> productivity of TU membership must increase -> increase demand for workers from firms as more productive workforce may increase profits
  • > when more productive, firms MRP swifts to right -> firms can afford to pay wages = MRP therefore if TU can increase productivity -> increased wages
18
Q

Monopsonist Labour Market Trade Unions

A
  • monopsonist employer can pay wages < MRP. TU could increase wage whilst maintaining level of employment or even increase it
  • bilateral monopoly - single buyer (monoposoniste) and single seller
19
Q

Wage discrimination

A
  • when employers with monopsony power pay different wage rates based on different workers’ willingness to supply labour
  • based on workers being discriminated against depending on differences between them such as gender and race
  • common in professions where employees negotiate own pay and conditions - some people will be able to negotiate higher wage than others for same job
20
Q

Advantages of wage discrimination

A
  • workers - as employers’ wage costs reduced -> increased demand for labour -> providing more jobs
  • employers - reduces costs of wages, can lead to higher profits
  • economy - could increase employment levels through increased demand for labour
21
Q

Disadvantages of wage discrimination

A
  • workers - can lead to exploitation of vulnerable workers, who could be forced to accept low wages
  • employers - can require additional administration. - can lead to industrial unrest if workers know about differences in wages
  • economy - could lead to increases in inequality, benefits may be required
22
Q

Labour market discrimination

A
  • when specific group of workers treated differently to other workers in same job. Can be discriminated against due to race, gender, sexuality, religion, disability, age etc.
  • in UK, this against the law. Equality Act of 2010 replaced all anti-discriminated laws and made discrimination illegal in UK
  • can be cause of unequal distribution of wealth/income. Can lead to misallocation of resources, reduced efficiency and increased costs
23
Q

Employers who discriminate

A
  • believe that MRP of discriminated group of workers is lower than it really is -> demand fewer -> MRP curve shifts to left -> decreased wages
  • discriminating like this means firms have fewer workers to choose from. Ignoring better suited workers -> increased costs of production -> increased prices
24
Q

Impact of wage discrimination

A
  • govt may need to increase welfare payments to support discriminated workers
  • discriminated workers on unfairly low wages -> reduce tax revenues for govt
  • if discriminated workers at job they don’t suit (e.g. overqualified) levels of productivity fall. When output and efficiency fall -> country may lose international competitiveness -> negatively affect country’s balance of payments, reducing sale of exports -> cause employment
25
Q

Skills shortages

A
  • shortage of skilled labour drives up wage costs for firms -> increasing costs of production
  • may be forced to employ workers who don’t have desired qualifications/experience -> reduced productivity and quality levels
  • training can increase productivity but employers worry other firms will poach their newly-trained employees without incurring costs of training
  • encouraging immigration of workers with certain skills tackles skills shortages
26
Q

National Minimum Wage

A
  • sets legal min hourly rate of pay for different age groups. First introduced by UK govt in 1999 to stop firms setting wages so low their employees couldn’t afford good standard of living
27
Q

Advantages of min wage

A
  • may help those on very low incomes and reduce level of poverty -> more equitable distribution of income
  • boost morale of workers as they’ll receive better wages -> increased productivity
  • govt tax revenue likely to be greater
28
Q

Disadvantages of min wage

A
  • can increase wage costs for firms -> may have to cut jobs -> increased unemployment
  • could decrease international competitiveness for UK as foreign firms will have lower costs
  • firms may have to pass increased costs on to consumers through increased prices -> contributing to inflation
  • doubts whether introducing a NMW really decreases poverty. Many of poorest members of society aren’t in work (elderly and disabled) -> can’t benefit from increased wage rate

Economics Micro nozza (7 decks)

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