Labour Market Flashcards
What is the labour force demand?
Amount of workers firms are willing and able to hire at a given wage rate over a period of time.
What is the elasticity of labour demand?
Measures the responsiveness of demand when there is a change in wage rate
If Labour force demand is elastic:
If Labour force demand is inelastic:
employment is sensitive to a changing wage
a large rise in wages causes a small fall in employment
What factors influence the demand for labour?
1-The price of the good or service: The higher the price of the good or service, the more profitable it is for firms to produce it, and the more labour they will demand.
2-Productivity of labour: The more productive workers are, the more output they can produce per hour, and the more labour firms will demand.
3-The cost of labour: The higher the cost of labour, the less profitable it is for firms to hire workers, and the less labour they will demand.
4-The cost and availability of substitutes: If there are good substitutes for labour, such as capital or automation, firms will be less likely to demand labour.
5-The level of technology: The higher the level of technology, the more productive workers can be, and the more labour firms will demand.
6-The level of government regulation: The more regulations there are on businesses, the more costly it is for them to operate, and the less labour they will demand.
7-The level of economic activity: The higher the level of economic activity, the more goods and services are being produced, and the more labour firms will demand.
Tutor2u:
Firms will demand more labour when the wage rate is low, and they will demand less labour when the wage rate is high. There are a number of factors that influence labour demand, including the price of labour, the productivity of labour, the cost of capital, and the business cycle. Labour demand also plays an important role in determining the equilibrium wage rate in the labour market.
Derived Demand:
The demand for labour is a derived demand, meaning that it depends on the demand for the goods and services that labour produces.
Main causes of geographical immobility in the UK labour market:
1 Housing - cost high housing costs in certain regions, particularly major cities like London, can be a significant barrier to mobility. Workers may be hesitant to move to areas with expensive housing, even if job opportunities are more abundant, due to concerns about affordability.
2 Families and social ties - Moving away from friends and family can be emotionally challenging and may deter individuals from seeking employment in other regions.
3 Education institutions - Access to quality schools and educational institutions can influence decisions about moving.
4 Costs of living - High living costs, including transportation, healthcare, and childcare, can discourage individuals from relocating to areas with a higher cost of living.
5 Limited access to transportation - limited access to public transportation can make it challenging for individuals to commute to work.
Useful evaluation points.
What is the supply for labour?
The number of people willing and able to supply at a given wage rate
Why is the Labour supply line drawn from W0 and not 0?
W0 = Reservation wage rate - minimum acceptable wage rate
What would a higher wage rate in theory lead to on the labour supply diagram?
W1 - an expansion of the labour force supply to an occupation or industry
What are the factors of non-wage factors impacts the labour supply?
Career opportunities
Job risk and job security
Antisocial hours
Generosity of occupational pensions
What are the factors which impact Labour Supply?
1) Real Wage rate
2) Extra pay
3) Wages in substitute occupations
4) Barriers to entry e.g. minimum requirements
5) Improvements in the occupational mobility of labour as a result of apprenticeships and other work experience.
6) Non-Monetary Characteristics of jobs e.g. job risk , anti-social hours, opportunities for promotions , job security.
7) Net migration of labour e.g. inward migration boosts the active / available LS in occupations. example NHS.
What causes shifts in the labour force supply?
- A rise in net inward migration of workers with relevant skills to this occupation
- Impact of extra investment in human capital (training and education) including vocational programmes and degree apprenticeships
- A fall in relative wages in substitute (alternative) jobs
- Demographic trends – for example, an increase in the number of school and college leavers
What are the main Market failure in labour markets ?
1) Skills gaps
2) Geographic immobility
3) Economic inactivity e.g. illness, discouraged workers, Childcare.
4) Inequality and working poverty
5) Discrimination
6) Monopsony power of employers
Solutions to reduce Economic inactivity:
-Govt Subsiding Child care.
-Higher min wage / living wage to encourage people to work.
-Improved education outcomes.
-Increased govt investment in healthcare and social care.
-Welfare reforms.
Solutions for monopsony power of employers:
-statutory min wage for low paid jobs
-Improved legal protection of basic employment rights.
-Encourage higher trade union membership / union density.
-Enhanced scrutiny of mergers for adverse labour market effects.
