Labour market Flashcards
1
Q
define labour market
A
- the number of people of working age who are employed or who are looking for employment
- a derived demand= based on demand of goods and services
2
Q
describe the demand curve for labour
A
shows how many workers will be hired at any given wage rate over a given period of time
3
Q
causes of labour demand shifts
A
- change in final price of the product labour is making
- change in demand of final good= labour derived demand
- change in labour productivity= change in MPP= change in MRP= training
- change in price of capital= in LR FOP variable= need to hire more or less workers depending on cost of capital
4
Q
define elasticity of labour wage
A
measures responsiveness of labour demanded given a change in wage rate
5
Q
factors that impact elasticity of labour wages
A
- substitutability of capital for labour= more substitutable= more elastic wage= can replace workers w capital
- inelastic demand for final good= wage inelastic
- costs of labour as % of total cost= high cost= elastic wage
- time period= LR all FOP variable= easier to bring in capital= LD becomes wage elastic
6
Q
factors that impact elasticity of labour supply curve
A
- nature of skills required for job= more skills= inelastic demand for labour= more specialised and specific
- long training period= inelastic= harder to get qualifications
- vocation elements= if wages decrease= wouldn’t be large decrease of nurses or teachers= don’t only do job for sake of monetary benefit= vocational benefit of profession= not as responsive to change in wages= inelastic
- realtively low skilled jobs like hospitality have elastic supply curves
7
Q
characteristics of perf competitive labour market
A
- large potential of employers and employees
- labour homogenous
- perf info
- no barriers to entry and exit= no extra qualifications and can leave work wo notice
- firms are wage takers
8
Q
impact of firms being wage takers in perf competitive labour market
A
- no incentive to offer WR which is above S=D
= WR that markets sets is equal to MRP of workers in industry= if firm increases WR= costs more than MRP brought in by worker - workers can’t demand WR to increase= all labour homogenous and lots of workers= firms would just employ someone else
9
Q
describe imperfectly competitive labour market
A
- labour is different= diff MRPs per worker= diff wages depending on MRP= diff supplies of labour due to diff qualifications etc
- labour isn’t perfectly mobile= geographical immobility and occupational immobility of labour
- lack of perf info of market= may not know wages of all diff jobs= can’t choose best WR job
- TU and supply restrictions due to laws like MW
- monopsonies= sole wage setter= use power to drive down wages
10
Q
adv of wage differentials
A
- can incentivise productivity of ppl to get qualifications in order to get a higher income= higher productivity of labour force= makes economy internationally competitive= growth
- trickle down effect= ppl w high wages spend more= multiplier effect for small businesses etc= higher wages for firms= high demand= job creation
- high wages= higher income tax= gov can use tax revenue to redistribute income for the poor
- encourages enterprise= take risks to increase MRP and LR growth
- encourages ppl to work and not live off benefits= decrease strain on gov finances
- promote efficient allocation of labour= changes in wages per worker depending on suitable skills= workers end up in most productive profession to boost economy
11
Q
disadv of wage differentials
A
- income inequality of ppl in poverty= low SOL and low spending= low LR growth
= gov must increase welfare spending= strain gov finances - inequality= social costs= high crime rates, protests etc= negative externalities= spending on policies increase
- trickle down effect may not occur= high WR earners may want to save not spend due to high MP to save or may spend money on goods abroad to get good rate of return= won’t affect domestic businesses
- gov solutions are limited if its a monopolist employer= high WR= higher inflation
12
Q
EVALUATION of wage differentials
A
- depends on how much inequality
- risks of gov failure= high income= higher tax= distort incentive to work
- SR vs LR= in SR income inequality can get out of control
13
Q
criticisms of MRP theory
A
- hard to measure productivity of all worker e.g. teachers
- assumes each individual’s productivity can be measured
- the self employed don’t measure their own MRP
- assumes we all work w perf CLM= TUs bargain WR
14
Q
define monopsony
A
occurs when there is a sole or a dominant employer in a labour market, wage makers
15
Q
define a trade union
A
organised association of people who are formed to protect and further their rights through collective bargaining
16
Q
evaluation of TU in monopsony
A
- depends on TU density= proportion of workforce that’s part of TU
= lead to higher bargaining power to control SL - real world evidence proves limited power of TUs
- legislation of closed shop TUs= illegal
= ballots must be done in order to strike and can only take place if 75% members agree with strike otherwise strike is illegal - depends on elasticity of demand and supply for labour= if labour demand curve is wage elastic= limited bargaining power= higher decrease in unemployment and smaller increase in WR
- in theory monospony may pay low wages but in reality they dont have to
= many firms with big bargaining power dont pay low monoposony wage
= Aldi has increased it’s minumum pay for basic employees which is 10p higher than living wages recommended= £10.55/hour - we assume that producitvity remains uneffected by wages but efficiency wage theory says increasing wages leads to increased productivity= repay high costs of wages through higher staff retention etc
- are monospony ‘superstar firms’ becoming too big?= do we need gov intervention
17
Q
how does a TU impact a monopsony labour market
A
- strong TU makes the monopsonist a wage taker upto point WTU= has to set WTU to employ workers
- creates a new supply curve where each worker is paid the same wage until WTU
- has to increase wages to attract more workers= supply curve goes back to og
- monopsony hires worker up until MRP=MCl= maximise profit
18
Q
define minimum wage
A
statutory pay floor that can’t be undercut, currently £11.44 for 21 yrs
19
Q
adv of minimum wage
A
- gov will impose MW above equilibrium level= make fairer wages and close gap between rich and poor
- increase incentive to work= less voluntary unemployment as ppl seeking work have higher income opportunity
- fiscal benefit to gov= high incentive to work= less benefits costs for gov= more tax revenue= can spend on other policies that will redistribute incomes
- increase worker morale= higher productivity due to more motivation in workforce
20
Q
disadv of minimum wage
A
- can cause classical unemployment= cause excess supply of labour as COP is higher= worsen unemployment
- youth will be impacted worse as they have least experience and skills to produce high MRP= harder ti justify their high costs of employment for firms= lead to long term unemployment= hard to get back into work and gain experience to get high income jobs
- ppl who don’t rely on MW may demand higher WR in order to keep an incentive to work through wage differentials= belief they deserve higher ages due to their skill set and expertise= increase MC of labour for firms
- small businesses struggle to make profit
21
Q
Alternative incentives instead of MW
A
-Living wage= hourly rate based on basic cost of living in UK= optional for businesses to pay
- Income tax reforms= cutting basic rate of income tax= improve work incentives
- benefits reforms= link benefits to participation on work programmes
- tax reliefs on apprentices
22
Q
labour market imperfections
A
- occupational and geographical immobility of labour
- monopsony employers
- trade unions
- discrimination in workplace
- imperfect info of market and employers
23
Q
policies to address labour market failure
A
- tougher equality laws, MW and measures to cut poverty
- subsidies to encourage business start ups
- 2017= free childcare for 30hrs for 2-4 yr olds
- lower travel costs and house prices= increase mobility of labour
- 2022, Sunak promised 2000 AI scholarships for free to people at economic deisadv
- increase MW= increase income= increase SOL
24
Q
define discrimination in the work place
A
refers to unfair treatment of individuals based on their race, gender, age or religion, not based on skills or qualifications
25
impact of discrimination in work place
- decrease productivity= hiring decisions aren't based on merit= potentially high skilled worker lose out on jobs
- legal cost of employers= can be fines and compliance costs= damage firms rep= deter future cursors and employees
- decrease economic growth= cause unstable employment for sections of society= won't reach productive potential
26
reasons for wage differentials
- women move in and out of labour force due to having children
- different elasticities of labour supply= low paid jobs tend to have low barriers to entry= high supply of labour that won't change if wages tend to be low= elastic supply of labour
27
how to decrease pay gap
- subsidies to TUs
= can increase campaign funds, increase membership and strikes etc
= higher bargaining power to negotiate higher and fairer working conditions e.g. longer holidays
- national minimum wage
- supporting/ higher investment for women in the workplace through training and education
= in free labour market, wages determined where supply=demand
= if women gain more skills and MRP through education and training, demand for women in labour market increases
= won't cause any unemployment but high cost to gov= most permanent and long term fix to issue
= risk of gov failure= OC of gov money AND time lag AND wouldn't fix the pay gap if its caused by discrimination= doesn't address key root of issue
= would regulation be better?
- introducing non discriminatory laws like 2010 equality act
28
EVAL of min wage
- depends on wage elasticity of demand of labour= if labour demand is elastic, would increase unemployment more= can be shown by drawing inelastic demand of labour line and elastic demand of labour line
29
describe income effect of wage rises
- looks at the individual labour supply decision and in particular the work leisure trade off and how this is affected by a change in wages
= most individuals face a choice between hours worked and hours of leisure
= the opportunity cost of taking leisure is the monetary value of the wages foregone
- positive income effect= when higher wages cause people to want to work more hours in order to reach a target / desired income
- negative income effect= when a target income has been reached and people prefer spending more time on leisure rather than earning more income
30
describe substitution effect of wage rises
- rise in the real wage increases the opportunity cost of leisure
= therefore higher wages will always cause people to be incentivised to work longer hours via the substitution effect
BUT the income effect may work in the opposite direction
- houses on low income are likely to have a positive substitution effect as they respond to higher wages
- as WR increases, workers may begin to substitute leisure for hours of work due to strong income elasticity of demand or have reached their target income
= will take shorter hours or work less days a week @ high WR as this is satisfactory
= cause labour supply curve to bend backwards
= make the income effect become negative as they choose leisure over hours of work
- as wages go up so does the OC of leisure
31
define transfer earnings
minimum reward required to keep factors of production like labour in its current occupation
= shown in the labour supply and demand diagram as the area under the labour supply and before the equilibrium point of Q1
32
describe economic rent
- any amount earned by a FOP above the minimum amount required to work in a current occupation
= shown below the wage and above the labour supply curve
- depends on the elasticity of labour supply
= if labour supply curve is inelastic, more reward to labour will be economic rent rather than transfer earnings
33
factors that affect the supply of labour
- geographical mobility of labour
- barriers to entry= occupational mobility of labour e.g. educations and qualifications needed for job
- non-monetary considerations like value of helping e.g. teacher
- value of leisure= risk substitution effect of labour as they may choose leisure over longer hours
34
factors that affect the demand of labour
- proportion of total costs
= if wages are a low % of total costs, demand will still be high (inelastic) but if its high %, demand will be lower= elastic
- ease and cost of substitutability
= if employer can cheaply and easily substitute a worker for capital, labour demand will be elastic
= e.g. security guards can be replaced with cameras and tech etc but can't do the same for a teacher
- elasticity of demand for final product= if good firm is selling has inelastic demand, a rise in price won't massively decrease demand for good=
35
define elasticity of demand for labour
measures the responsiveness to the demand of labour given a change in the wage rate
= elastic= demand for labour is sensitive to a change in WR e.g. capital could just replace labour so demand would fall
= inelastic= demand for labour is less responsive to a change in WR= increase WR doesn't decrease Q of labour massively
- supply of a footballer is inelastic and low due to high MRP whereas the supply for a teacher is elastic
36
define wage discrimination
when 2 workers get different incomes but do the same job
37
define wage differentials
when 2 workers earn diff wages for doing diff jobs due to diff skills
38
causes and examples of wage differentials
- women can be economically inactive during their peak due to pregnancy
- women may take part time work due to childcare responsibilities
- footballers have more inelastic supply of labour due to high MRP and low supply= tends to be higher demand and higher wage
= change in wages will lead to relatively small change in footballers supplied
= due to unique skill set and training for specific job
- teachers have inelastic supply of labour due to non-monetary considerations and motivations= gov can pay lower wages and still have sustainable supply of labour
= due to vocational rewards of work that aren't wage related
- north south divide means supply and demand for labour is diff in London than in Nottingham
= higher skilled workers know London has better reputation for high income jobs= best bankers and layers would go to London= attract better MRP supply of labour= higher demand for labour due to higher MRP per worker
- gap in ethnicity due to language barriers and lower qualifications= leads to lower MRP
39
factors of demand for labour
- productivity= MRP
- price of capital
- derived demand
