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Work and Leisure > Labour demand, supply and wage determination > Flashcards

Labour demand, supply and wage determination Flashcards

1
Q

Derived demand

A

Demand for one item depending on another item

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2
Q

Examples of derived demand

A

The factors of production

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3
Q

Impact of derived D

A

FoPs are wanted for what they can produce and what the output can be sold for

No. of workers a firm wishes to employ depends on the revenue that can be earned from what is produced

If demand rises/price of product increases, firm will seek to employ more

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4
Q

Aggregate demand for labour depends on:

A

Level of economic activity

Business confidence about state of growth

Growing tech/education and training means firms may match higher AD w/ existing/less workers

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5
Q

A firm’s demand for L:

A
  • Demand & expected future demand
  • Productivity (higher hourly worker output, more attractive labour is)
  • Wage rate
  • Complementary labour costs e.g. NI
  • Price of other FoPs that can substitute labour
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6
Q

MRP

A

The change in a firm’s revenue as a result of employing one more worker

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7
Q

MPL

A

Change in output that results from employing one more worker

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8
Q

MRP theory

A

Demand for any FoP depends on its MRProductivity

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9
Q

Law of diminishing returns

A

If one FoP is increased while the others remain fixed (ceteris paribus), it will reach a point where the marginal returns decline and become negative

Upside down U graph

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10
Q

According to MRP theory, what will the q. of any FoP employed be?

A

When marginal cost of employing one more unit = marginal revenue product of that factor

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11
Q

MRP in practice

A

difficult to measure

difficult to isolate the contribution of one worker (workers work in teams etc.)

Hard to measure tertiary sector productivity e.g. different kinds of doctors MP

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12
Q

Elasticity of demand for labour

A

% Change in wage rate

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13
Q

Factors that influence the EoD for L

A
  • Price elasticity of demand for the product produced
  • Proportion of wage costs in total costs
  • Ease with which labour can be substituted by capital
  • Elasticity of supply of complementary factors
  • Time period
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14
Q

Flexible labour market

A

a LM that adjusts quickly and smoothly to changes in the demand for and supply of labour

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15
Q

Degrees of elasticity of demand for labour

A
  • More flexible a labour market is, the more elastic demand will be
  • Demand for L in capital intensive industries tends to be inelastic (small amount of total costs)
  • Demand for L in labour intensive industries e.g. builders tends to be elastic
  • Higher elasticity for young & unskilled
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16
Q

Significance of Eod for L

A

Influences a union’s bargaining strength

influences government’s decisions for NMW etc.

17
Q

Backwards sloping labour supply curve

A

A labour supply curve showing the income and substitution effects

18
Q

Income effect of a wage rise

A

Reduction in the no. of hours worked due to a wage rise

19
Q

Substitution effect of a wage rise

A

Increase in the no. of hours worked due to a wage rise

20
Q

Pecuniary factors of a job

A

Wage rate
Opportunity for overtime
Possibility of bonuses

21
Q

Non-pecuniary factors of a job

A 
Convenience and flexibility of hours
Status
Promotion chances
Flexibility of location e.g. increase in home working
Qualifications and skills required
Job security
Pleasantness of the job
Holiday time e.g. teachers
Perks and fringe benefits - gym, cars, trips abroad
Quantity and quality of training offered
Location
Recent performance of the firm/occupation
22
Q

Elasticity of supply of labour

A

% change in wage rate

23
Q

EoS of L definition

A

The responsiveness of the SoL to a change in the wage rate

24
Q

Factors influencing EoS of L

A

Qualifications and skills required
Length of training
Immobility of labour
Time period

25
Q

Wage determination

A

Wages are likely to be high when demand is high and inelastic and supply is low and inelastic e.g. lawyers, brain surgeons

Wages likely to be low when supply is high relative to demand and both demand and supply are elastic e.g. waiters, baristas.

CONSIDER D&S CURVES

26
Q

Other influences on wage determination

A

Wages likely to be higher when:
Strong bargaining power relative to employers

Government policy - government is a major employer (direct), passes legislation that affects bargaining power (union reform), directly affects wage rates e.g. NMW

Social attitudes towards “what people deserve to be paid” - influenced by study time period, stress of job, work dominated by white middle class men

27
Q

Other influences on pay of brain surgeons and waiters

A
  • Relative bargaining strength; most brain surgeons members of the BMA, waiters have very low union power
  • Government policy; ageing population, advances in tech and increasing quality of life expectations have increased public spending on healthcare, Government policy influences the pay of waiters who receive the NMW
  • Public opinion; brain surgeons held in high public esteem, waiters not (they are females and ethnic minorities)
28
Q

Where do wage differentials occur?

A 
Between:
Occupations
Industries
Firms
Regions
29
Q

Why are skilled workers paid more?

A

Higher demand, lower supply
Higher MRP, skills possessed by skilled workers lead to high output per worker
Difficult to substitute skilled labour with capital

30
Q

Human capital

A

The skills, knowledge and experience a worker possesses

31
Q

Why are men paid more?

A

Comparing weekly pay - more women work part time

On average - MRP of women lower than men
(Reason is that men were better qualified than women, slowly changing as more women go to uni)

MRP of women remains lower than men as women are disproportionately concentrated in low-paid occupations that generate low MRP e.g. catering

32
Q

Transfer earnings

A

The amount a worker could earn in the best paid alternative employment - the opportunity cost of performing the current job

Equivalent to the minimum amount that has to be paid to ensure the worker stays in their present job

33
Q

Economic rent

A

A surplus over transfer earnings

34
Q

Elasticity effects on transfer/rent

A

Economic rent forms a large proportion when supply is inelastic e.g. footballers

Transfer earnings form a large proportion of earnings when supply is elastic e.g. bar staff

35
Q

Negative economic rent

A

Some people may stay in jobs for non pecuniary reasons and earn negative economic rent

Work and Leisure (4 decks)

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