Labour Market Flashcards
Demand for Labour
As an economy grows, the demand for labour also grows as output is rising.
As worker’s productivity increases, so does the demand for labour and the ability to demand high wages as marginal productivity is increased.
Supply of Labour
As labour is an inferior good, the supply of labour will decrease in the long run as workers substitute it for leisure.
The supply of labour will depend on:
-Wage rate
-Quality of the workplace
-Level of taxation/welfare
Geographical Immobility
This occurs when people cannot relocate to another part of the country to take up job opportunities.
Occupational Immobility
This is when workers are unable to change jobs due to a lack of skills or training.
This is very similar to structural unemployment.
Wage Determination in Competitive Markets
In competitive markets, wages are determined by supply and demand for labour.
If wages are too high then supply of labour will outweigh the demand, causing unemployment.
If wages are too low then there will be a shortage of labour as demand is higher than the supply.
Wage Determination in Non-Competitive Markets
In non-competitive labour markets there is a minimum wage.
A minimum wage causes unemployment as the supply of labour is greater than the demand.
In 2015, the Chancellor introduced a national living wage, 60% of the median hourly earnings.
Wage Elasticity of Demand for Labour
When demand for labour is wage elastic, an increase in wages is likely to lead to a reduction in demand for labour.
The opposite can be said for wage inelastic demand.
Elasticity of Supply of Labour
This refers to the responsiveness of workers or potential workers to changes in the wage rate.
If supply is price inelastic, then an increase in wages won’t cause an increase in the supply of labour.
This is most common in jobs which require lots of training/specific skills.
