Labour Demand, Supply And Wage Determination Flashcards
Give 5 factors to influence a firms demand for labour
Demand and future demand for products produced Productivity Wage rate Complementary labour costs Prices of other factors of production
What is marginal revenue productivity theory?
The idea that demand for any factor of production is determined by its marginal revenue productivity, and the quantity of a factor employed is where MCL=MRP
Draw a MRP and MCL diagram to show effects of a rise in wage on employment
In textbook (p51) and purple book
What is marginal revenue product
The change in a firms revenue resulting from employing one more worker
What is marginal product of labour?
The change in output that results from employing one more worker?
Why is it difficult to measure MRP?
It’s difficult to isolate the contribution one worker makes to changes in output, and difficult to separate contributions of capital and workers
Give influencing factors on the elasticity of demand for labour
PED for the product
Proportion of wage costs in total costs
Ease with which labour can be substituted with capital
Time period
Elasticity of supply of complementary factors
Flexibility of labour market
How does elasticity of demand for labour vary between age groups and skill groups?
Higher for young and unskilled workers
Describe the significance of elasticity of demand for labour
Trade unions have greater bargaining power when representing labour that has Inelastic demand
Government must consider elasticity of d for labour when altering
Describe how the number of hours worked changed with the wage rate. What diagram is this illustrated by? Draw
At low wager rates, increases in the wage will result in greater hours worked due to higher incentives
However after a certain wage rate, wage increases will lead to fewer hours worked as the workers financial requirements are met, and they will seek leisure. Shown by backward sloping labour supply curve, p55
What are the income and substitution effects of a wage rise?
Income effect is the effect on the supply of labour caused by the change in ability to buy leisure
Substitution effect is the effect on the supply of labour caused by a change in the opportunity costs of leisure
What influences the supply of labour to an occupation in the short run?
Wages
What influences supply of labour to an occupation in the long run?
The net advantages of the job
List the various non-financial factors influencing supply of labour in long run
Convenience and flexibility of hours Status Promotion chances Flexibility of location Qualifications and skills Job security Pleasantness of job Holidays Perk and fringe benefits Quantity and quality of training Location Recent performance of firm/occupation
Define elasticity of supply of labour
Responsiveness of supply of labour to a change in the wage rate
List factors influencing the elasticity of supply of labour
Qualifications and skills required
Length of training
Immobility of labour
Time period
Give determining factors of wage rates
Demand and supply of that occupation
Relative bargaining power of employers and workers
Government policy
Public opinion
In economic terms, why are skilled workers paid more than unskilled workers?
Demand for skilled workers is higher, supply is lower. They have higher MRP, and their work is less substitutable for capital
How is demand for labour a derived demand?
It depends on the level of economic activity and demand for certain produce
Why do part time workers earn less than full time?
The demand relative to supply is higher due to how convenient part time work is. They also get less on the job training, and are less likely to be in a trade union
Draw a diagram to show transfer earnings and economic rent
P63
What are transfer earnings?
What a worker could earn in their best paid alternative employment
What is economic rent?
A surplus paid to a factor of production above what is needed to keep it in its current occupation
How does elasticity of supply influence economic rent and transfer earnings?
The more Inelastic supply is, the more economic rent there will be, eg in high paid jobs that are enjoyable, such as bin men
