Labour market Flashcards
Labour demand
-Amount of labour firms are willing to hire at different wage rates
Derived demand for labour
-Derived from the demand for goods and services the labour produces
-positively correlated
Factors affecting labour demand
WDPTR
WAGE:
-wage increases, demand for labour contracts
-MRP must be higher for hiring to be worthwhile
DEMAND FOR PRODUCT:
-derived demand
PRICES OF OTHER FOP:
-Substitution effect
-If machinery is cheap, demand for labour will reduce
TECHNOLOGY:
-Less labour demanded if the work can be done by technology
-By 2040 - 47% of labour replaced
REGULATION:
-High regulation discourages firms from hiring workers
-Costly / time consuming
Marginal Revenue Product
-Revenue gained from hiring an additional worker
Downward slope
-diminishing marginal productivity - short-run fixed levels of capital
-substitution effect between machinery and labour
Supply of Labour
-Willingness and ability of people to make themselves available to work at different wage rates
Factors affectign supply of labour
WAGES:
-High wage, higher supply
POPULATION AND AGE DISTRIBUTION:
-High population - high supply
-High number of people of working age - high supply
NON-MONETARY BENEFITS:
-High satisfactionn from perks
-e.g. free private healthcare, flexibility, opportunities for promotion
EDUCATION:
-more education - more supply
-Occupations with high level qualifications needed have lower supply of labour
Geographical immobility of labour
-Difficult to move areas for work
-Cost of movement - especially for young people
-Family
-Housing
Occupational immobility of labour
-Lack of transferrabke skills
-Difficult in short-term
-Long-term can train workers - high cost
Market failure: immobility of labour
-Excess supply in some areas
-Excess demand in some areas
-Inneficient use of resources
Wage differentials
Compensating wage differentials:
-Reward for risk-taking
-Anti-social hours
-Poor conditions
e.g. coal miner
Compensation for human capital acquisition:
-Opportunity cost in acquiring qualifications
- university £9250
Skill level:
-High skilled workers in high demand - supply inelastic
-pushes pay up
Labour productivity and revenue generation:
-High efficiency - generates more revenue - higher pay
Trade unions:
-Use collective bargaining power to achieve mark-up on wages
Labour market issues
SKILLS SHORTAGE:
-immobility of labour
YOUNG WORKERS:
-During hard times firms are unlikely to hire new workers - harder to get employed
-perhaps have less valuable experience
GIG-ECONOMY:
-Self employment
-Zero hour contracts
-Unreliable pay
WAGE INEQUALITY:
-Those on the highest wages have seen their wages grow by a larger amount than those on a lower wage
-Rethink the distribution of wages
-Relative poverty
Minimum wage
ARGUMENTS FOR:
-Reduce poverty - impacts those with the lowest wages - relative poverty
-Increased incentives to work - increased productivity
-Knock-on-effect - firms increase wages of those just above minimum wage to maintain pay premium
-Prevents unemployment trap - benefits higher than minimum wage
-Prevent exploitation and monopsony power
ARGUMENTS AGAINST:
-Raise COP for firms who in turn raise prices of their goods - counteract - inflationary - real wage doesn’t actually improve
-Black market work - firms give cash in hand
-Real-wage unemployment due to decreased demand
-Regional differences
Maximum wage
Public sector wage setting
-Half of gove spending
-Trade unions in UK are weak
-Short run - Government can make decisions the way they desire
-Between 2010 and 2015 - pay freeze of public sector workers - downward pressure on private sector - few people likely to leave private for public - firm excuse for limiting private pay
-8% higher pay for public
-In the long run - if private workers receieve higher pay people will move from public to private - gov must increase wages
-Long term rise by same percentage
Policies to tackle labour market immobility
GEOGRAPHICAL:
-Improve supply of houses and reduce the price
-Improve transport links
-Subsidies on housing where there are labour shortages
-National advertising
OCCUPATIONAL:
-Vocational training
-Encourage further study
-Greater spending on training
-Education targeted at improving skills shortages/ job applications
