Labour Market Flashcards
1
Q
Define labour demand
A
- The demand for labour is derived demand as it is derived for the demand for what the labour produces/carries out (industry firm works within)
- The amount of workers a firm is willing to employ at different wage rates.
- Eg) If the electronics industry has 0 demand, there would be no demand for labour.
2
Q
Define MRP
A
- The demand for labour is said to be derived from the marginal revenue product.
- MRP is the additional revenue gained by increasing the unit of labour by 1 unit.
- MRP = MPP * price per unit (MR)
3
Q
Define MPP + determinants
A
- The marginal physical product refers to the additional output gained from increasing labour by one unit.
- ‘How productive a unit of labour is’
- Education, skill set, intellect, physical ability etc.
4
Q
Factors that effect the demand for labour
A
- Demand for good/service (industry price), as labour is derived demand if the demand for a specific good or service changes the demand for labour will follow.
- Wage rate, changes to the wage rate will alter the demand for labour.
- MPP (productivity of labour), the more productive labour is in theory the higher demand for this labour.
- Elasticity of labour demand
- Current economic climate, if the economy is in recession firms may experience a lack of demand therefore may effect number of workers they employ.
- Substitutability, if labour can be replaced easily/cheaper by capital firms will be incentivised todo this therefore D for labour will fall.
- Firms profitability, a more profitable firm will be able to afford more labour.
5
Q
Define ‘short run’ and ‘long run’
A
The ‘long run’ refers to a specific amount of time in which all factors of production are variable.
-The ‘short run’ refers to a specific amount of time in which only one factor of production is variable, usually labour.
6
Q
Describe factors that influence the elasticity of labour demand
A
- Substitutability, if labour is easily substitutable by capital the more elastic the labour is. If labour is less substitutable (Eg, Doctor, Lawyer) the more inelastic labour demand will be.
- Labour costs as a proportion of total costs, if labour costs are high as a proportion of total costs labour demand will be more elastic.
7
Q
Describe factors that influence the elasticity of labour demand
A
- Substitutability, if labour is easily substitutable by capital the more elastic the labour is. If labour is less substitutable (Eg, Doctor, Lawyer) the more inelastic labour demand will be.
- Labour costs as a proportion of total costs, if labour costs are high as a proportion of total costs labour demand will be more elastic.
8
Q
Factors that effect the supply of labour
A
- Wage rate, increasing/decreasing the wage rate effects the number of workers willing to work at that wage rate.
- Migration, can increase the overall supply of labour as well as fill labour shortages in specific industries (HGV).
- Elasticity of labour supply
- Trade unions, the supply of labour may increase in industries with union presence as workers believe their rights are protected.
- Taxes, changes to the income tax rates may incentivise/disincentivize individuals from working.
- Training/education, if training/education is made more accessable (subsidy) the supply of labour may increase in higher skilled jobs may increase.
9
Q
Define the elasticity of labour supply
A
- Elasticity of labour supply refers to how responsive the supply of labour is relative to changes in the current wage rate.
- Eg) if the supply of labour is inelastic, changes to the wage rate will have little effect on the quantity of labour supply.
10
Q
Factors that influence the elasticity of labour supply
A
- Mobility of labour, the more mobile labour is the more elastic the supply of labour becomes, as individuals can move between jobs with ease.
- High/Low skilled jobs. Lower skilled jobs result in a more elastic labour supply as there is a large group of low skilled workers willing to work at many different wage rates. High skills are inelastic in the short run and potentially elastic in the long run (education subsidy and higher wage attraction). Changes to the WR with high skilled professions –> minimal changes in quality of labour supply as training/education is required (Medicine degree).
11
Q
Describe imperfections in the labour market (factors why wage differentials exist)
A
- Monopsony, occurs in a market with one employer of a labour therefore this employer has the power to limit labour and reduce wages.
- Trade unions, intervention of trade unions may cause potential market failure or in fact increase the wage rate and the productivity of workers.
- Discrimination, firms may act irrationally and pay different demographics different wage rates ret having the same MRP.
- Difficult to measure productivity/MRP, in some industries it may be difficult to measure productivity (Doctors) therefore difficult to determine MPP/wage rate.
- Firms are not profit maximisers, the theory of MRP suggests that when the demand for a good/service declines the demand for labour will follow (derived D), however some firms may not reduce wages/cut labour off (moral business objectives?)
- Geographical immobilities/location, some areas of the country pay higher wages than others due to differences in profitability and demand. ‘North South divide’.
- Occupational immobilities, refers to the ability to move between jobs as well as an individuals skillset. In a declining industries less occupationally mobile labour will find it difficult to find new jobs due to their skillset, therefore may cause structural unemployment.
- Poor information, workers as well as employers may be unaware of better/higher paying work/jobs as well as cheaper more productive labour elsewhere.
12
Q
Define trade union
A
-A trade union is an organisation made up of workers with the goal of improving workers rights/benefits, reducing structural discrimination, increasing the wage rate and improving job security.
- Around 6-7 million union members in the UK (2020)
- 80’s Thatcher reduced power of unions through stricter regulation.
13
Q
Describe the aims of trade unions
A
- Collectively bargain, trade unions can negotiate with an employer or at a national level.
- Productively bargain, occurs when unions and firms agree that the firm will increase wages in the event the respective workers increase productivity (performance based pay).
- Improve workers rights/benefits/regulation
- Increase wage rates
- Reduce discrimination in the labour market
14
Q
Describe how trade union intervention may cause market failure.
A
- In the event a trade union has bargained a firm to raise the wage rate, although this leads to an increase in the wage rate it also leads to a fall in the quantity of labour demanded at this wage rate. Therefore excess supply of labour at the higher wage rate –> potential unemployment.
- However in the event the productivity of the labour supply also increases the effects of the union intervention which has caused excess supply ay be offset due to an increase in the demand for labour.
15
Q
Describe trade unions in a monopsony market
A
- In a monopsony market, their is only one source of labour demand (one employer of labour), therefore have the ability to pay lower than market equilibrium wage rates due to power in market.
- Union intervention –> higher wage rate therefore leading to an increase in the quantity of labour supplied as well as wage rate.
- The union intervention has counteracted the power of the monopsony firm.
