Labour Market Flashcards
What value determines the demand for labour
The marginal revenue product
What is the calculation for MRP? (and how to explain it)
MRP = Marginal output x price (extra total revenue given by each worker)
What is demand for labour derived from?
Demand for a businesses product
What factors affect demand for labour (6)
- Wage rates - As wages increase MRP decreases
- Demand for the product - Labour is derived demand
- Price of other factors of production - Capital replace labour
- Wages in other country - import labour
- Technology - Technology means capital can replace labour
- Regulation - Some jobs are protected by law and other laws making hiring/firing easier can increase employment
Factors affecting PED of labour
- PED of the product - If PED of product is high then a rise in wages -> rise in prices of product -> large decrease in quantity demanded -> large decrease in demand for labour
- Proportion of wages as a cost of production - high proportion means small increase in wages large increase in cost to company
- Substitues - If capital can easily replace labour they’ll fire them quicker and replace them
- Time - always elastic in long run
Who determines supply of labour?
The WORKERS
What affects supply of labour?
- Wages - As wages increase more people are willing to work or can work longer ours
- Demographics - As population grows supply of labour grows, also ageing population means less workforce
- Non-monetary benefits - If there is high job satisfaction, or even perks like free membership to societies can tempt people into work
- Education - More educated workers means better quality of labour
- Wages and conditions of other jobs - Are alternatives better?
- Barriers to entry - Trade unions might restrict supply, or governments might require a qualification, or firms might require work experience
- Legislation - school leaving age
What are is failures in the labour market?
Immobility of labour
How does geographical immobility of labour affect supply and demand for areas in certain areas?
It can lead to excess supply and demand in certain areas
Why might a worker be geographically immobile?
Higher house prices, inability to get to interviews
What is occupational immobility
When a worker lacks transferrable skills to move between jobs
What is the Elasticity of supply?
Responsiveness of supply to a change in wage rates
What determines elasticity of supply?
- The immobility of labour - low immobility equals hard for workers to tranfer jobs
- Time
- Size of the unemployed
What are the 4 different types of labour markets that exist?
- Perfect Competition - wasges decided by supply and demand
- Monopsony - Only one buyer of labour
- Monopoly - One provider of labour
- Bilateral Monopoly - Battle of wages between supplier and demander
Is there any wage inequality in the same labour market if the market is perfectly competitive?
No all workers are paid the same because if they were paid below the market rates they would just move