Labour Market Flashcards
What is Labour?
A factor of production comprising the effort of workers to create goods and services
What is a sub-market?
Part of the market with unique characteristics
Derived Demand
Where the demand for a factor of production or good derives not from the factor or good itself, but from the goods or services that it provides
What is the Marginal Physical Product of labour (MPPL)
The additional quantity of output produced by an additional unit of labour input (extra output made by extra worker)
What is marginal revenue product of labour (MRPL)?
The additional revenue recieved by a firm as it increases output by using an additional unit of labour input
The equation for MRPL?
MPPL X MR
What is the marginal revenue product theory?
That the demand for labour depends upon balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit of labour
What is wage elasticity of demand for labour? (WED)
A measure of the sesitivity of quantity of labour demanded to a change in the price of wages
What is the equation for WED?
%change in quantity of Labour demanded/ %change in wages
What is labour productivity?
A measure of output per hour worked
What is unit labour cost?
The average cost of labour per unit of output
Factors affecting the MOVEMENT for the demand for labour?
Price of labour (wage rate)
Factors affecting the SHIFT in demand for labour?
- Change in the demand for the products workers produce
- Change in the price of the good workers produce
- Change in an employment subsidy
Factors affecting wage elasticity of demand for labour?
- Time-demand for labour is more elastic in the long run as new workers can be trained
- Substitutability-the extent to which labour can be substituted by capital (machines)
- PED of product - the more price elastic demand for the product, the more elastic the demand for labour because wage costs are passed on to the consumer by increased prices
A profit maximising firm chooses labour input such that…
…the marginal cost of labour is equal to the marginal revenue product of labour (MCL=MRPL)
What does the position of the firm’s labour demand curve depends on factors tht affect the price of a firm’s product and influence the MPPL such as?
- Technology
- Efficiency
In a perfect competitive market what cannot the firm influence?
Cannot influence the market wage, and can get as much labour as required at the market rate, so MCL is horizontal
What is the equation for WED?
WED= %change in quantity of labpur demanded/%change in wages
What is Labour productivity?
Is an average measure of output produced by workers
What are the main influences on labour productivity?
- Skills and training of workforce
- Availabilityof complementary factor inputs (capital and technology)
- Organisation of production process (e.g. division of labour)
What are Non-pecuniary benefits?
Benefits offered to workers by firms that are no financial in nature
What is the income effect?
The change in demand for a good or service caused by a change in a consumer’s purchasibg power
What is the substitution effect?
As prices rise - or income decreases - consumers will replace more expensive items with cheaper alternatives
What are transfer earnings?
The mininmum payment required to keep a factor of production in its present use
What is economic rent?
Any amount earned by a factor of production above the minimum amount they require to work in a current occupation
What is the choice for an individual worker?
A choice needs to be made between income earned from working and leisure
When would a worker potentially subsitute work for leisure?
An increase in the wage rate
What may the income effect mean for workers?
Will demand more leisure at higher income levels
What would happen if the income effect dominates the substitution effect?
The INDIVIDUAL labour supply curve becomes backwards bending
What would an individual backwards bending supply curve mean for the INDUSTRY supply curve?
Will not bend backwards because higher wages attract more workers into the industry
What elasticity does the Labour supply tend to be in the long run?
More elastic in the long run than the short run as, in the long run, workers can be retrained. E.g. a sudden change in the wage rate may not see many workers leaving the profession(may be temporary) however, many may leave after a longer period of time due to the fall in the wage rate not being temporary
Factors thats cause a shift in the supply of labour?
- Competitiveness of wages with other industries (as wages increase)
- Skills needed and the difficulty of acquiring them
- Non-pecuniary benefits e.g. flexible hours
Factors affecting wage elasticity of supply of labour?
- Skill level required to do the job(higher the skill level, reduces supply=inelastic)
- Number of unemployed workers (elastic)
- Time period - long run more (elastic)
What are the determinants of economic rent and transfer earnings?
- The wage rate
- Non-monetary factors
- Net migration
- The elasticity of the supply of labour: Skill level required, number of unemployed workers, mobility of labour
What is the total rewards to the factor input labour?
Total earnings + Economic rent = Total reward
When the labour supply is inelastic more reward will be…
Economic rent rather than total earnings
Name a labour market where there is zero economic rent and only transfer earnings because all workers are paid the same?
Amazon delivery driver
Name a profession when economic rent is variable because firms negotiate with each infividual that is supplying their labour ?
Footballer
What are wage differentials?
The difference in wages between workers with different skills in the same industry
What is a monopsony?
A market in which there is a single buyer of a good, service or factor of production (in this case labour)
What is a trade union?
An organisation of workers that negotiates with employers on behalf of its members
What is a bilateral monopoly?
A situation in which a monopoly seller of labour (a trade union) faces a monopsony buyer of labour (an employer)
Wage differentials can exist because of?
- Compensation - from risk taking
- Different skill levels - the market for skilled labour is more inelastic
- Differences in productivity - labour that generates more revenue is awarded higher pay
- Trade unions - collective bargaining, wages levels
One reason for why a worker may not want to join a trade union?
If they arent able to afford the membership fee
One reason for why a worker may join a trade union?
To negotiate for better wages, working conditions
What does trade union activity depend on?
Militancy of the trade union - the more willing a trade union is to withhold the labour of its members, the more impact trade union activity has on a labour market
Name an example of a monopsony (single buyer of labour)
NHS - doctors
In a perfectly competitive market with a monopsony employer, workers reveive what types of wages?
Lower wages and fewer are employed
Because there is a single buyer of labour what does the monopsony view the supply curve as?
Views the supply curve of labour as the average cost of labour as it shows the wage rate needed to attract labour
What does the monopsony view the MC as?
The marginal cost of labour is the cost of hiring an extra worker and raising wages for all other workers to that level
To profit maximise where does the monopsony hire labour up to?
MCL=MRPL
The monopsony hires MRPL= MCL in order to profit maximise. However this all depends on what?
The objective, if the monopsony isn’t wanting to profit maximise (employ at L0), but has an objective that requires a higher output, such as sales volume maximisation, firm will employ more than L0
If WES is relatively inelastic, what does this necessarily mean?
Workers cannot find employment in other industries, the monopsonist has greater power to offer lower wages compared to a more competitive equilibrium wage rate
Name a monoploy seller of labour?
BMA -(doctors union)
A bilateral monopoly may depend on…
-Relative strength of the two groups: monopsony more financially stable could ‘weather’ a strike, more willing to strike the greater the bargaining power for the trade union
-Elasticity of demand
WED for labour is more elastic when a firm can easily substitue labour for capital; TU less able to negotiate higher wages
Due to the power of trade unions becoming more curtailed over the recent decades what has this sometimes resulted in?
Negotiating for better working conditions rather than for higher wages
What is occupational mobility?
The ability of workers to move between jobs, which depends on the extent to which their skills are transferable and the cost of retraining
What is geographic mobility?
The ability of workers to move between locations for work depends on their willingness to uproot family and education ties, and their ability to pay to move
Analysis of Occupational mobility?
Apprenticeship levy?
The apprenticeship levy (fee) tries to overcome the free rider problem (firms
recruiting apprentices trained by another firm); when large employers take on an apprentice they must also pay a levy which, when they later employ
that apprentice, only they can reclaim (along with an extra subsidy). The
incentive to train the apprentice to the top level is high
Analysis of Geographical mobility?
Prices of houses?
Differences in house prices may make it unaffordable for workers to move
between regions of the UK, especially with the high rate of owner-occupied
homes (as opposed to rented homes), and long waiting lists for council
houses
Analysis of Regional policy?
Differences in average incomes?
Differences in average incomes can be made less severe with government intervention by locating government departments in regions to create jobs
Analysis of technology?
Productivity?
Investment in new technology increases productivity and marginal revenue product of workers if labour markets are sufficiently flexible, and can be retrained fast enough
Analysis of contracts and legislation?
Notice must be given in when firing workers?
Firms must give notice and pay redundancy, increasing costs of hiring new workers. Zero-hour contracts mean no guaranteed working hours, this varies week to week. Redundancy pay is based on this and prevented with zero-hour contracts
Evaluation of Occupational Mobility?
Apprenticeship pay?
Depends of the level of pay. The extent to which apprenticeships reduce
labour immobility depends on how large a pay cut workers are willing to take,
as older workers are both the most likely to want to retrain and the highest
paid
Evaluation for Geographic Mobility?
Cause of change?
If domestic workers are less able to afford to move location due to uneven
increases in house prices, then firms may have to offer increased pay to
attract workers, whereas more days off would be more effective if the
immobility were caused by unwillingness to leave friends and family
