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Economics Micro A level > Labour Market > Flashcards

Labour Market Flashcards

1
Q

Define the labour market

A

a factor market that deals with the dd and ss of labour to determine wage rate

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2
Q

Define labour

A

mental and physical contribution of a worker towards production

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3
Q

What is the dd for labour

A

no of hrs for which an employer is willing and able to employ a person at the prevailing wr over a given time period

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4
Q

What type of dd is dd for labour and explain

A

derived dd where dd for labour depends on dd for the finished good it helps in producing

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5
Q

Define MR

A

addition to TR generated from sale of an extra unit of output

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6
Q

Define MRP

A

addition to TR from sale of an extra unit of output produced by an extra unit of variable factor/labour

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7
Q

What is the MRP theory

A

relates the wage payable to worker to his/her productivity
workers are rewarded based on their contribution
fair and just

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8
Q

What are the 7 assumptions of the MRP theory

A

1.Mkt[labour n product] is in perfect competition-many firms demanding labour and many workers willing to work

  1. Productivity can be measured to reward worker
  2. Labour is homogeneous-equally productive-no difference in skills

4.Workers and employees- perfect knowledge of mkt

  1. labour is perfectly mobile within the country

6.everything is determined by mkt forces- no govt intervention.

  1. prodn is subject to the law of diminishing returns- MP rises then falls
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9
Q

Explain the MRP THEORY

A

demonstrates how WR can be related to productivity and how dd curve is generated

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10
Q

How is the Mrp calculated

A

MPP * PRICE
mpp= marginal physical product, output produced by last unit of labour employed

price is of the finished good

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11
Q

What happens when an extra unit of labour is employed

A
  1. It add to TC in terms of the WR
    • addition to TC is the MC

2 it add to TR interms of revenue received from sale of the output produced by the last unit of labour employed
-addition to TR is the MRP

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12
Q

When will a firm employ more workers
and when will he reduce level of employment

A

When MRP is greater than MC
workers are bringing in more revenue than what they cost

When MRP is less

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13
Q

Where will producer attain equilibrium
GIVE DIAGRAM

A

MC = MRP and MRP Is falling

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14
Q

Why is the MRP shaped such that is rises initially and then falls

A

Since we are in a perfect mkt, firms are price takers and there is a single price.

MRP= MPP/MP * Price

since price is constant, MRP depend solely on the MP

MP is subject to the law of variable proportion

rises at start - excess capacity, specialisation gains, more productivity
but then falls because of constraint of the fixed factor, lower productivity

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15
Q

Where is the level of employment determined at

A

MC = MRP
MC=WR

MC=MRP

but 2 pts,
equilibrium is therefore where mrp is falling as so long that mrp is till rising, firm should take full adv

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16
Q

What is the dd curve of labour

A

the falling portion of the MRP CURVE

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17
Q

What are the criticisms of the MRP theory

A
  1. No PC in factor and product mkt
    - dd side imperfection- monopsony
    ss side- trade union

2.Labour is not equally productive and should not be rewarded at the same wage rate.

3.Govt may intervene through the national min wage

4.Productivity is not always measurable- teachers

5.workers may be immobile

  1. WR depend on productivity of last labour employed which is wrong
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18
Q

Why is the dd curve downward sloping

A
  1. Profit motive- profit maximisers
    employ workers till profit is being maximised
    higher wr ,^ cost, reduce profit
  2. Income effect, higher wr , decreases income of employers and their ability to employ more workers.

3.Substitution effect
WR increases, cost of labour compared to capital ^, producers switch to capital is substitutable

4.least cost combination of labour and capital

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19
Q

Factors determining dd for labour

A

assumptions
1. pc- many buyers n sellers
2. profit maximisers

1.WR ^ -increase labour cost - movement
2.DD finished good
3. Productivity labour ^, more attractive, MP ^, MRP^, shift in dd curve
4. Price of finished good
5. cost of capital and its availability

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20
Q

define wr

A

rate at which an employer rewards an employee for his mental and physical contribution towards production.

21
Q

Define elasticity of demand of labour

A

change in QDD of labour following a change in WR

22
Q

Factors affecting elasticity of dd of labour

A
  1. Elasticity of dd of finished good
    - if inelastic, dd workers also inelastic as producers can increase price of finished good to absorb the higher WR to prevent great fall in employment

2.if large proportion of labour cost in total cost- a small increase will cause a great rise in the TC

3.Ease with which labour can be replaced- ready to replace workers with capital

4.Availability of substitution

  1. TIME PERIOD
    LR- elastic - easily replace labour and increase capital, new substitutes can emerge such as capital goods and improved tech
23
Q

Define ss of labour

A

no of hrs for which labour is willing n able to work at the prevailing wr over a given time period ceteris paribus

24
Q

How will ss change when WR ^

A
  1. Income effect [-ve]
    purchasing power ^, real Y ^, able to afford most gns , work less and take more leisure

2, Substitution effect [+ve]
wr ^, want to work more, ss more efforts to earn more / ss labour ^
opp cost of leisure is high- could have earned more

25
Q

Explain the ss curve of labour
+ give diagram

A

ss ^ initially but then falls - backward bending ss curve

1st part: +SE IE GREATER THAN -ve IE
- low WR- work not attractive
WR ^
- ss ^- preference for work
opp to improve SOL by working harder

2nd part
AS WR keeps on ^, ss fall, IE greater than se
can earn high amt while still enjoying leisure

26
Q

Give diagram of how a worker can earn more while still working less

A
27
Q

Limitations of the ss curve

A
  1. LOW-Y COUNTRY, wages are really low, higher wr will increase ss, encourage them to work more
  2. If higher wr makes workers worse off due to higher prices. Lower real y n purchasing power, continue to work harder to increase sol

3,Contractual obligation- forced to work a certain no of hrs

4.WR ^, positive attitude towards work, ss still ^, eg chinese and japanese

28
Q

Define the labour ss to a firm

A

no of hrs for which workers taken together are willing and able to work in an occupation at the prevailing wr, ceteris paribus.

29
Q

Draw the ss curve of labour to a firm or industry

A

upward sloping

30
Q

Define elasticity of ss and gives it determinants

A

ease with which ss can be altered

  1. Skills and qualifications required
  2. Unemployment
    3.length of training
    4.mobility of labour
  3. time period
31
Q

Factors causing an increase in ss of labour to a firm or industry

A
  1. Barriers to entry- [specific] skills and qualifications required, minimum contractual obligation

2.Geographical and occupational mobility of labour

  1. High unemp - ss of labour is high, more workers will be available for unemp

4.Non monetary benefits- working conditions, status of the industry, pension plans, work overseas, promotion prospects

  1. In competitive labour mkt- relative WR in different industries.
32
Q

Define the LR ss of labour

A

no of hrs for which workers taken together are willing and able to work in the different sectors of the economy at the prevailing wr over a given time period.

33
Q

Factors affecting national ss of labour

A
  1. size of population- India and China - modest rate of ^ / decling
    -age composition- younger population ensure higher labour ss in LR
  2. Retirement age- extension from 60 to 65
  3. School leaving age- extension will decrease labour ss in the SR but improve quality in the LR
  4. Migration policy- high y countries such as uk canada have higher lr/national labour ss from immigration
  5. Female participation rate/ attitude towards female employment
  6. Labour force participation rate

7.+ve Attitude towards work- such as china and japan

  1. Wages and working conditions
  2. Taxes and benefits - higher taxes and greater unem benefits, discourage work , shift LR ss curve to the left
  3. More geographical and occupational mobility
34
Q

Wage and non wage factors affecting ss of labour to a firm

A

WAGE:
earnings- total pay received

  1. Weekly wage
  2. Salary
  3. Bonus
    4.Overtime
    5.Commision

NON WAGE
1.Size of firm
2. Job satisfaction
3.Distance to be travelled
4.job security
5 hrs of wrk
6 Holidays
7promotion prospects
8.nature of the job
9.wrking conditions
10.fringe benefits
11.pensions

35
Q

How is WR determined in perfectly competitive mkt

A

no intervention by govt, TU, employers
1. MRP theory
2. DD SS of labour

36
Q

How is WR determined in PC using the MRP theory

A

-a worker is paid a wage to his MRP
wage= MRP
single price
MRP is determined solely by the MP

WR is determined by mkt where Dl[MRP CURVE]= SS of labour
wage is then accepted by all firms
ss becomes perfectly elastic because of homogenenous labour

MRP ^, DD shifts to right, WR ^, employment ^
the higher the productivity, higher the WR

DRAW DIAGRAM

37
Q

Define MP

A

output produced by last unit of labour employed

38
Q

How is WR determined in PC using mkt forces of dd n ss of labour

A

Lower the WR- higher the dd
Higher the WR- higher the ss

in free labour mkt, wr is determined by the interaction of dd ss
GIVE DIAGRAM

Labour mkt is dynamic
changes in mkt conditions lead to changes in the WR

39
Q

Define a monopsony

A

when employers group themselves in an association such that there is only 1 buyer.

40
Q

How is the ss curve in a monopsony

A

An upward sloping one
they are wage makers- in order to attract more workers they have to ^ the WR

41
Q

What rises as level of employment in a monopsony rises

A

WR, AC , MC

42
Q

Why MC is greater than AC in monop

A

as, a worker gets hired, wage rate for every worker increases not only for the additional labour employed

43
Q

Where does a worker attain equilibrium in a monop

A

where MRP[ DD] = MC L

BUT in a monopsony[ WR is determined by the ss curve[AC]

workers are paid a lower wage-not the full value of their MRP
worker exploitation

give diagram

44
Q

Evaluation for monopsony

A

The greater the difference between equilibrium wage and wage paid, the greater the degree of monopsony power

45
Q

Aim of a trade union[+ve -ve}

A
  • to increase WR as far as possible [even more than the MRP]
  • wc, prevent unfair dismissal, job security, training of workers, minimun wages, maximum working hrs
    BUT
    if WR greater than MRP - unemployment
46
Q

When is TU intervention beneficial

A

in a monopsony
known as bilateral monopoly
monopoly supplier- Tu
monosonistic buyer of labour

wr and emp can both increase till dd[MRP]= ss[AC] - known as the perfectly competitive equilibrium point

47
Q

When WR is equal to MRP, when can WR ^

A

When MRP ^ - improve productivity/ price ^ with advertising/improvement in quality

48
Q

evaluation of the national min wage

A

A national min wage to reduce worker exploitation who have no bargaining power with employers
reduce inequality
increase labour ss of lower y groups. incentive to work hard for low y
poverty alleviation,
provide fewer goods to the poor
small rise in tax revenue

But effective only above equilibrium, cost push inflation

49
Q

When is unemp caused by a min wage higher

A

dd and ss are elastic

Economics Micro A level (4 decks)

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