Labour Market Flashcards

1
Q

What value determines the demand for labour

A

The marginal revenue product

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2
Q

What is the calculation for MRP? (and how to explain it)

A

MRP = Marginal output x price (extra total revenue given by each worker)

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3
Q

What is demand for labour derived from?

A

Demand for a businesses product

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4
Q

What factors affect demand for labour (6)

A
  1. Wage rates - As wages increase MRP decreases
  2. Demand for the product - Labour is derived demand
  3. Price of other factors of production - Capital replace labour
  4. Wages in other country - import labour
  5. Technology - Technology means capital can replace labour
  6. Regulation - Some jobs are protected by law and other laws making hiring/firing easier can increase employment
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5
Q

Factors affecting PED of labour

A
  1. 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
  2. Proportion of wages as a cost of production - high proportion means small increase in wages large increase in cost to company
  3. Substitues - If capital can easily replace labour they’ll fire them quicker and replace them
  4. Time - always elastic in long run
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6
Q

Who determines supply of labour?

A

The WORKERS

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7
Q

What affects supply of labour?

A
  1. Wages - As wages increase more people are willing to work or can work longer ours
  2. Demographics - As population grows supply of labour grows, also ageing population means less workforce
  3. Non-monetary benefits - If there is high job satisfaction, or even perks like free membership to societies can tempt people into work
  4. Education - More educated workers means better quality of labour
  5. Wages and conditions of other jobs - Are alternatives better?
  6. Barriers to entry - Trade unions might restrict supply, or governments might require a qualification, or firms might require work experience
  7. Legislation - school leaving age
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8
Q

What are is failures in the labour market?

A

Immobility of labour

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9
Q

How does geographical immobility of labour affect supply and demand for areas in certain areas?

A

It can lead to excess supply and demand in certain areas

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10
Q

Why might a worker be geographically immobile?

A

Higher house prices, inability to get to interviews

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11
Q

What is occupational immobility

A

When a worker lacks transferrable skills to move between jobs

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12
Q

What is the Elasticity of supply?

A

Responsiveness of supply to a change in wage rates

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13
Q

What determines elasticity of supply?

A
  1. The immobility of labour - low immobility equals hard for workers to tranfer jobs
  2. Time
  3. Size of the unemployed
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14
Q

What are the 4 different types of labour markets that exist?

A
  • 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
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15
Q

Is there any wage inequality in the same labour market if the market is perfectly competitive?

A

No all workers are paid the same because if they were paid below the market rates they would just move

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16
Q

What determines the wage rate in a perfectly competitive market?

A

The forces of supply and demand for labour

17
Q

On the monopsony labour graph, does demand refer to the employees or firms?

A

Firms

18
Q

On the monopsony labour graph, does supply refer to the employees or firms?

A

Employees

19
Q

How does a monopsony buyer of labour attract more labour?

A

They have to raise the wage rates, which will be for all workers or some workers will get annoyed

20
Q

Why is the Marginal Cost (MC) of labour higher than the Average Cost (AC) in a monopsony labour market?

A

Because to employ more labour the monopsonist has to waise the wage rates of all workers

21
Q

What does the Monopsony labour market graph look like?

What does the Demand curve also represent in the monopsony labour graph?

A

Labour demand = MRPL

22
Q

How does a monopsonist buyer of labour decide what level of workers to employ? (and the formula form)

A

They employ up to where the value added by the worker (MRP) equals the cost of adding the worker (MC) so where D = MC

23
Q

Compared to perfect competition does a monopsony labour market pay a higher or lower wage rates? (and why)

A

Higher wage rates (because it’s where MC = D not where AC = D)

24
Q

Compared to perfect competition does a monopsony labour market employ more or less people? (and why)

A

Less people (because it’s where MC = D not where AC = D)

25
Q

What organisation can often act as a monopoly in a labour market?

A

Trade unions

26
Q

How do trade unions use barriers to entry to increase wages? (2)

A

They can require certain qualifications to be a part of the labour force, or they can have compulsory membership to the union with a subscription fee

27
Q

How do trade unions stop wages from dropping to market optimum?

A

Workers can refuse to work for less than trade union level and use strike action and union pressure to stop businesses from lowering wages

28
Q

What shaped demand curve does the union refusing to work for below a certain wage create?

And describe supply and demand for labour graph this creates

A

It creates a kinked curve, with wages fixed up where the typical supply of labour intersects and then it increases with that.

29
Q

What is the minimum wage set by the trade union here?

And what would happen if a firm offered more than that minimum wage?

A

£4.20

The number of workers would rise to meet it

30
Q

What is the downside of trade union measures to increase wages?

A

They decrease employment

31
Q

What happens when there is a bilateral monopoly in the labour market and the monopolist refuses to work below a certain level?

A

A bargaining battle occurs and whoever has the more bargaining power will win

32
Q

In what period of the economic cycle do unions (monopolists) have less power?

A

Recession because workers are desperate

33
Q

How can a trade union setting a minimum wage actually help market efficiency?

A

They could force companies to employ at allocatively efficient level (MRP=AC) rather than at profit maximising level (MRP=MC)

34
Q
A