Labour Market Flashcards
4 assumptions for a perfectly competitive labour market?
Large number of workers and employers
Freedom of entry and exit
Perfect knowledge
Homogenous labour (same prod. levels and no qualification costs)
What is meant by perfect knowledge in the assumptions?
Workers know jobs and wages
Employers know available labour and productivity of it
What goes on the axis of a labour market diagram?
Y axis - hourly wage
X axis - labour hours
For an individual worker, why is the demand horizontal?
Regardless of how many hours they want to work, they’ll be paid the same hourly rate therefore wage taker
Define marginal disutility of work?
The extra sacrifice to a worker of working an extra unit of time in any given period
Draw labour market diagram, individual worker diagram, MDU diagram
Now
Why does the MDU slope upwards?
Boredom and tiredness make the disutility increase each hour worked
What is the key trade off in the labour market?
Leisure vs work
Draw diagram for hrs worked against hrs leisure, thus consumption against leisure and show how that makes the supply curve for a worker
Now
Why can the supply of labour hours increase OR decrease as wages rise?
It depends how the IDC shifts when wages rise
Draw the backward bending supply curve of labour diagram? Explain above and below w1?
Above w1 - people say ‘not much point in doing overtime, I can afford to spend more time at home’
Below w1 - people say ‘I am willing to put in more hours to get a higher SALARY(not wage)’
Draw diagram for individual employer in labour market? Explain supply curve?
The supply curve is horizontal because firms are wage takers
Draw diagram showing MP(L), MR(L), TP and MC(L)?
Now
Where is the profit maximising employment of labour?
Where MC(L) = MR(L)
2 examples of labour market imperfections?
Employer side: monopsony, oligopoly
Worker side: labour unions
Daw diagram for monopsony labour market
Now
Draw diagram for labour union in labour market (min wage)?
Now
Why do wages differ?
Jobs and workers aren’t identical
2 ways jobs differ?
Not equally attractive
Different human capital requirements (education level)
3 ways workers are different?
Ability levels
Differences in motivation
Discrimination?
What are compensating differentials?
A difference in wages that arises to offset the non-monetary characteristics of different jobs
Eg (hard/easy, fun/dull)
What is the superstar phenomenon?
When exceptional talent is disproportionately overpaid
Learn discrimination of workers stuff
Now
What happens when a firm discriminates?
They end up paying a higher wage than necessary (acts as if wage for migrants is (1+d)W(M))
Where d is the discriminatory coefficient
