Labour Market Flashcards
Derived demand
Demand for labour is reliant/derived for the product it creates/producers
Factors affects the demand for the product affect the demand for labour- in a recession demand for labour decreases as there is a general reduction in econ leading to cyclical unemp
Demand for uemp
How many workers an employwer is willing and able to hire at a given wage rate in a given time period
Inverse relationship between demand for labour and the wage rate
If wage rate is high- more costly to hire extra employees
Wages lower- labour relations cheaper than capital- fall in wage ration amking create a substitution effect (labour and capital_))leading to expansion in labour in a market
Marginal rev product of labour
Extra rev generated when an additional worker is employed
Marginal product of labour/marginal revenue
Change in output/change inn rev
Mrpl curve is demand curve for labour-
Marginal rev product of labour assumes
A firm employing labour is operating in a perfect company market
Profit max and so change level of employemnt that max profit
Hire people where marginal revenue=marginal cost of labour
Problems with marginal rev product labour
Measuring labour efficiency can be difficult
Relatively easy when making physical product such as in contruction industry, or in call cnetres, harder in education
Collaborative work makes it difficult to establish the production of idnvid worer
Elasticity of lab demand
Measures the responsiveness of demand where there is a change to the wage rate
Elasticity of lab demand depends on
Lab costs as % total costs- lab expensesa re a high % total costs, lab demand more wage elastic
Ease and cost of factor substitution- lab demand, more elastic when a firm can easily sub between capiutal and labour
Ped of final product- determines whether ra firm can pass on higher labour costs to consumer in form of higher price- if fdemand is inelastic, higher costs passed on
Time period- in long run easier for firms to sub facto rinputs- bring more capital in perhaps replacing lab
Shifts in labour demand curve
Increase final consumer demand- businesses need to take on more workers
Change in market price of output that lab is making
Increase productivity of lab which makes lab more cost efficient than capital- higher prodcutivity marginal product of lab
Gov employment subsidies which allowes business to employ more workers
Change cost capital equipment- pistion in labourers
Firm may be wiling to take on more labour if mrpl increases, incresing productivity vai techonology and higher education
Labour supply
Number of hourrs people are willing and able to supply at a given wage rate
Upward sloping
As wages increase- workers incentive enter this industry0 attracted by the incentive of higher pay- expansino
Workers may be attrcated into industry from related occupations
Workeers previously employwe din this occupation may be attrcated back end period of econ inactivity
Causes of outwards shift sypply for labour
Net inward migratioh with qualified experience
Fal in relative pay in substitute occupations
Lower barriers to entry - min professional qualifications
Demographcis factor changes- increase child care provision
Inward shift supply for labour
Brain drain effect- econ lose skileld workers oversee- tax
Decline in non monetsied rewards asociated with jobs- stress
Falll in relatie pay in sub occupations
Key factors affectig labour supplu
Real wage rate and extra pay- overtime
Wages on offer in sub occulations
Barriers to entry- articfical limits with min qualifications
Imporvement sin occupational mobility of labur and stock human hcapital
As a result expansion apprenticieships and other type of work experience
Non monetaised characteristic sof specific jobs- job risk, antisoila hours job secuirty
Net migration of labour
Dmeocgraphic factors workers mum
People preference- working hours flexibility
Income and substitute effects wage rise
Individ face a choice between hours workerd and hours of leisyre
Opp cost of leisure is value of wages forgone
Change wage rate- income and sibstitut effect
Positive income egffect
High wages icnentives people to want to work more hours in order to reach a target desired income
Negative income efect
Target income has been reached and peple prefer to spend more time on liesure trather than earning more
Substitution effect
Increase in real wages, opp cost lab
Higher wages will always cause people to incentive to work loger hours via positive sub effect
Income effect may work opp direction
Substitution and income effect
Initially increasse- income and sub effect as longer hours work
Gradient change- income effect may start to become negative as peple prefer liesure to work
Backwarss benidng as choose work fewer hours when wage rate rises- ceteris parabis
Analysis assumes choice in hours worked
Fixed hours or zero hours contract
People on low wages likely to have storng positive sub effect respondng tyoo increase min wage
Elasticity of supply
Measures the extent to which labour supply repsonds to a change in wage rate in gven time period
Determinants in elasticity of supply
Skills//qual
Inelatsic of skilled workers, length and easeof trainnihg more inelatic, min skill needed makes sub workers more
Vocational nature- more so such as nursing less responsiev to changes in wages
Time epriod- needs longer time to respond to change in wages as people may need to be retrained
Marginal cost of labour
Chnage total labour costs from employing one extra worker
Graphs for magrinal cost laboru
If firm can charge same wage and increase wokrer-s horizontal line across
Diverging with mcl steeper gradient than acl if need to increase wages
Nominal wages
Unaffected by nflation
Real wages
Express value of a wage adjusted for effects of inclflation
Equilibirum market wage rate
Intersection of s+d for lab
Employees hired up to theis point
Extra cost hiring= extra revenue from selling output
Causes of pay differentials
Compensatory wage differntials- risk taking poor conditions unsocial hours- oil rig
Diff skil level- market demand for skiled lab grows more uqicklly than semi skilled
Diff in lab products and rev creation- workeers whose efficiency higher and generate revenue often reward with higher pay
Tu use collective bargaingp ower to achieve a markup on wages comp non union members
Artificial barrier-s min qual
Discrimination- although equal pay act 2010 meant that firms with 250 plus employers must publish pay gap
How change to income/wealth
Redistributive welfare transfer
Progressive taxation
Wage floors and emp rights
Tackling sturctural barriers to employment
Redistributive welfare transfers
Higehr welfare ben- capped 26k
Expanded suport disav students with paying tuition fees
Public goods free at point of use
Progressive taxation
Higher taxes on property income
Increase icnome tax allowances and rate of incomes over 0k is 40%
Wages floors and emp refomr
Nat living wage increase, min wage over 21 to 11..44
Improved emp rights, affordable childcare
Tackling sturctural barrier sto emp
Eearly years education and more nutirtutional school meals means increaed brain development
Increased access new technology inn disadv community
Better vcoational education, stem, mathes 18
Target measures to address lt unemp /hysterisis
Min wage
Statutory pay floor that cannot be undercut
2016 min wage over 23- nat living wage- apr 2024- 11.44
But real living wage by libing wage foundation 13.15 in london- reflcects actual living costs which 11,000 employ
Min wage impact
Creates excess supply real wage unemployment- minn wage too high
Contraction of employment- depends on level at which min wage is set
If lab demand inelastic higher min wage only case limited contraction on level of lab demand
Eval the likely microecon impact of an increase in nat in wage
Intro definition of min wage
Workers benefit
Firms
Market structure depends on
Impact of uk nat min wage - workers benefit y
Equity fairer pay, reduce powers as income increase- ucl and institute for fiscal studies found 60% in reative poverty in work
Incentivise workers to work
Unemp trap reduce, replace ratio out of work di/in work di
Impact nat min wage increase- workers beneift- no
But not all workers- self employed and gig econ- on felxible st contracts paid for task than by hour
The gaurdian may 2023- 52% in gig econ make less min wage- ie uber deliverroo, just eat
But sc cruling uber guarenteed 70,000 drivers min wage floor, holiday pay, pension- but only paid time trip allocated to drop off not waiting tim
Impact nat min wage increase- firms- pro
May encourage firms to increase training in order to increase lab productivity
Impact of increase nat min wage increase firms- no
Small business may struggle to make profits- risj of increase busness cost, increase price, less comp internat members, decrease exports worse for firm
Instead gov should offer tax relief on apprentices, training (apprenticeship levy) increase incentive bysinesses rather than via increase min wage
Pressure increase wages all workers
Increase mnat min wage- market structure- depends
Monopsony
-new profit max level of emp with min wage at e2, higher wage than previously paid by employers, above set point pay more incentivise more workers
Comp lab market
-wage determined by industry rather than firm
-characteristics- many firms, perfect info, homogeonus skils, sam ejobs
-lead real wage unemployment and excess suppply
Min wage efficiency depends on
Ped firms products- can pass on higher costs andd cant sell their products
State of econ- whether firm are sufficiently rofitable to be able to absorb a higher mib wgae
Higher min wage motivates workers to improe productivity- lower uit costs
Depends magnitude- over time scale- 2022 to 2024- 24%
Key roles tu
Protects and improve real living standards, real wages of their members
Protects workers against unfair dismissal- yphold emp rights
Promoting improvements in working condistions- work life balance and related health and safetuy issues
Promoting better workplace training and eductaion - accuumilate human ccapital
Protection of pension righst for union members
How tu works
Use collective bargaining to protecct workers
Eg unite (almost 1.3 mill members)
% employees members fallen 32 to 23% 1995 to 2023
But increase strikes due to increasing living cots industrial action mroe prevalent, juniorr dcotors 2024, teachers 2023
Tu description of graph
Tu may bid for employers to pay a premium wage above normal comp market wage
May lead to excess uppply lab and contracction total emp- e1 to e2
Sucess factors for ty
If demand for lab relatively inelastic
More influential if represent high % of workers in particualr industry
Pay may also increase if unions and emp agree a pay deal based on sucess in prodiuctivity
Factors behind tu decline
Impact of legislatipon- reduced many of their powers to engage in industrial action- majority must vote to strike via a secret ballot
Increase flexible lab markets- st contracts, zero hhhours, part time, self emp
De-industrialisation- fewer jobs in industries where unions tended to be stronger- less jobs heavy manufacturing and mny more in services fractures
Impact globalisation reduced bargainig power of employees, icnrease monposony- power of large tncs
Monopsony employer
When sole or dominant employer in lab market gives them wage setting power
Potentially cause lab market fluctuations- nhs, teachers, armed forvces
Characteristics of perfectly comp lab market
Many firms
Prefect info
Homogenous skills
Identical jobs
Wage determined by industry rather than firms
Monopsony employer
Lab sypply one is available cost employ people
Profit max employed when mcl=mrpl
E2 no people emp- marginal rev emp at w2
But monopsoy power of employer allows to pay wage rate w3
Monopsony emp can use their biying power to pay a wage lower rthan the value of mrpl emp at e2- monospony power lead to exports of emp workers
Monopsony with tu bargaining
A sucessful tu may be able to negotaite a higher min wage of wtu in lab market
Meaning market comp emp lab is constanst up to emp level e4
After firm must pay more to incentive extra workers- mc reverst roigional
New profit mac level of emp with min wage now at e3- hieghr emp level and higher wage than previous wage paid by monopsony emp
Eval tyu effectiveness- monopsony tu min wage
Monospony more posoitive make nib wage
May dpeend on strength tu
Legislation- closed shoppes naneed, secrret ballots used majority for strike action
Impact tu may be assessioed by dif wages in tu and outsideq
Explain causes of wage differentials in uk
Intro- wage differentials defined as diff wages between different workers
Diff in production and revenue creation
Compensation differentaisl
Barriers to entry
Wage differentials= diff in production and revenue creation
Rev creation higher, rewarded with higher pay- footballers at sucessful club w best players (ie premier league) earn huge rev tv advertising dealds, merchandising and ticket sales- cluns can afford exceedingly high eages
High mrpl with high skilled workers generally prodcue high value added gs- engineers making cars, lawuers legal services
Who mrpl shift right- y wage x emp
Causes wage differentials- compensating differentials
Some jobs may need to increase wage to incentivise industry to do less appetising jobs- associated with higfh risjk or unsocial hours- oil rig
But Discrimination- 2010 equalities act enacted, firsm over 250 emoloyees publish data on gender pay gap= bbsc male presenter - gary lineker match of the day most
Min wage may be still underpaids
Discriminate against migrants- alck understanding of rights
Causes wage differentials- barriers to entry
Min education requirements and tests passsed- sqe lawyers
Highe rskill in high demand ie lawyers, rweduced no of them due to entry reuqirements make more inelastic ins upply focmp unskilled or semiskilled workers
Lower skilled workers mroe leastic
Diagram
Causes wage differentials- barriers to enrty
Unskilled workers may be able to increase wgae levels through tu- nrmt train workers
Depends on willingness of gov for nat industries or firms for prvatised
Imperfections in lab market
Monopsony
Tu
Discrimination
Diff measure produtcivity
Wages vary geographically
Occupationall immbolity
Poor info
Firms not proft max
Imperfections lab market- discrimination
Firms may not be rational but may pay diff on basis of age race or gender
imperfections lab market- diff measure productivity
Mrp best for goods but not services sector
Wages set other reasons than mrp
Imperfections lab market - wages vary geographically
N=- sunderland- less demand higher unemployment elastic supply of lab- s
In theory workers from n move to s- goegroaohical immobiloty (ties children in schools, poor info jobs elsewhere
Imperfections of lab market- Firms may not be profit max
If demand for prduct falls,m mrp suffer wages likely to fall
But firms may be reluctant to cut wages or make redundnt
A reduction in the demand for rthe product that the labouor produces is due to
Increase productivity of lab
Demand for lab is more wage elastic when
Lab costs are a high proportion of tiotal costs
Supply curve of lab axis
X q lab supplied
Y wage rate
How to tell on diagram extent of unemp created tu
The excess supply - demand where higher wage rate passes
Demand for labour is more wage elastic when
Labour costs are a high proportion of total costs
Work in retirement
Yougov 2017- 40% respondents said that they provided regular childcare for their granchldren
1/5 enbaled children work more
Life cycle hypothesis who came up with
Modigliani
Childcare barrier ofor women working
Fawcett society estimated 250,000 british mothers with children under the age of four had left teh workforce
Cost of childcare and lack of employer flexibility- child care cost 25% av wage britain comp 14% across oecd
Yet as of 22024- eligability criteria tto enable 15h per week hours 9months to 3, 3-4 - as of sept. 2024
Other barriers women working
Generous maternity and paternity leave
Japan skorea long paternity 31 and 22 weeks to encourage women enter workforce, although few fathers choose to dstwy at home
If firm wishes to employ more labour
Must raise marginal wage
Where does monosponsit employer demand labour up t owhat point
Where mcl= mrp
Impact of min wage depends upon
If above equlibrium point and its level
Elasticity supply- inelastic min wage may not result in signif change in employment
If demand inealstic jobs lost relatively small
