Labour Market

Question 1

what is demand for labour

Answer 1

the number of workers an employer is willing or able to hire at any given wage rate over a time period

Question 2

what is marginal product for labour

Answer 2

the extra revenue generated when an additional worker is hired

Question 3

what is the shape of the demand curve for labour and why is it shaped this way

Answer 3

downwards sloping
because in the short run there are diminishing marginal returns (every worker added increases productivity due to specialisation until a certain point)
and in the long run capital is more cost effective than labour at higher wage rates

Question 4

what can shift the demand curve for labour

Answer 4

-labour is derived demand so relies on the demand for the final product
-productivity of labour : more productive means increased demand
-productivity of capital : increased productivity of capital means decreased demand for labour
-price of capital : lower capital costs means lower demand for labour

Question 5

what is the elasticity of labour demand

Answer 5

measures the responsiveness of labour demand to a change in wage rate

Question 6

what influences the elasticity of labour demand

Answer 6

-substitutability of capital
-elasticity of demand for product
-proportion of labour to total costs
-time period

Question 7

what is the supply of labour

Answer 7

the number of hours workers are willing and able to work in a given time period

Question 8

what is the shape of the labour supply curve and why

Answer 8

upwards sloping
because of the incentive effect as higher wages means more people will enter the industry

Question 9

what shifts the supply of labour

Answer 9

-wages in other industries
-barriers to entry : skills and qualifications
-size of working population : immigration
-value of leisure time

Question 10

what is elasticity of labour supply

Answer 10

the responsiveness of labour supply to a change in wage rate

Question 11

what influences the elasticity of labour supply

Answer 11

-skill level required for the job
-length of training period
-vocation (if its more vocational people are less likely to exit the industry)
-time period

Question 12

what are the two reasons for market failure in the labour market

Answer 12

-geographical immobility : inability of workers to move to find work due to family ties or moving house

-occupational immobility : inability of workers to move between jobs as they don’t have the skills for jobs available

Question 13

what are some ways to tackle market failure in the labour industry and reduce immobility

Answer 13

-housing subsidies
-training and education
-apprenticeship schemes

Question 14

what is a competitive labour market

Answer 14

there are many buyers (firms) and sellers (workers) where firms are wage takers

Question 15

what is monopsony in the labour market

Answer 15

when there is a single buyer of labour in a given profession

Question 16

examples of uk monopsony

Answer 16

-nhs
-armed forces
-education
-amazon esp areas with high unemployment

Question 17

how do monopsonies use their power

Answer 17

pay lower wages than a competitive market as workers have few if any alternatives

Question 18

how do monopsonies cause market failure

Answer 18

-lower wages
-reduced employment as they can choose to hire fewer workers
-diminished job quality (worse working conditions, fewer benefits, less job security–>worse wellbeing)
-economic inequality
-leaves workers with less ability to negotiate for higher wages, increased working poverty and rising welfare claims (that must be funded by tax payer)

Question 19

possible interventions to correct market failure caused by monopsonies

Answer 19

-minimum wage (few people are on it anyways)
-regulation and laws - allowing trade unions, outlawing gang master, equal pay legislation, employment protection laws