labour market and tech change

Question 1

a NMW in a monopsony labour market

go over the diagram

Answer 1

After L2 to attract the wage rate has to increase for all workers. all of a sudden there is a increase in the marginal cost of labour

firms employ more workers at the NMW because the Marginal cost is lower

Question 2

why may a national minimum wage increase MRP

Answer 2

as workers will get a higher wage they may be better incentivised to work harder/ train.

this may increase MRP and as a result the demand for labour may increase as workers become more productive

Question 3

how can trade unions cause labour market imperfections

draw the diagram

Answer 3

1. a trade union forces firms to raise wages in order to prevent a strike and the lost revenue associated with it as output stops.
2. at this wage rate some firms may be less willing and able to pay workers and as a result it may cause excess supply shown on the distance QS to QD
3. at this wage level firms can employ a lower quantity of workers at the same labour cost and as a result it may make workers redundant and real wage unemployment may be experienced

Question 4

name 3 labour market imperfections

Answer 4

1. monopsony
2. trade union
3. it can be hard to measure productivity may lead to worker such as teachers to be undervalued.

Question 5

why may monopsonies cause labour market imperfections

Answer 5

buyer power and employees have no other jobs to go to and as a result they can pay lower wages

this is especially relevant in the NHS as nurses and doctors dedicate around 7 years of their life to become a doctor and this may be wasted by working in another industry

Question 6

evaluation of a trade union

Answer 6

1. depends of bargaining power and how many people are in the trade union. for example trade union memberships are falling
2. assumes all workers are on the same wage

Question 7

MRP theory

Answer 7

MRP theory assumes that a firm will continue to demand labour so long as there MRP is greater than MC

firm should only pay a worker a wage that is less than or equal to that worker’s marginal revenue product.

Question 8

how may advances in technology lead to rising wages

Answer 8

1. for example carpenters using electric drills rather than hand drills may be able to make goods (tables) at a faster rate as a result.

as a worker produces more in the same amount of time the MRP will increase and if the MRP is greater than the marginal cost of labour the demand for labour will increase

Firm may have to increase wages to attract workers from other firms to work or attract new entrants into the market to satisfy there demand

2. increases in demand for labour in tech industries where supply may be inelastic as market is new

Question 9

explain the substitution effect

Answer 9

With higher wages, workers will give greater value to working than leisure. With work more profitable, there is a higher opportunity cost of not working. The substitution effect causes more hours to be worked as wages rise.

lowered income tax may result in the substitution effect as the reward for working increases

Question 10

explain the income effect

Answer 10

after wage rise, workers may work less because they can get their target income with fewer hours spent working.

Question 11

what is says law

Answer 11

If a businessman produces a good, then he will be keen to sell it. This production creates wages for workers and income for the businessman. Therefore, the production has increased wealth and leads to demand for other goods.

Question 12

example of MRP

football

Answer 12

If we take a premiership footballer, they have a high MRP. If they score winning goals, they can earn substantial revenue for their club (in prize money, tv rights). Therefore, if one player can make the difference of staying in Premier League, they may be worth £20m a year. Because there is a lot of money in football, the top players can demand high wages.

Question 13

examples of labour with inelastic demand and supply

Answer 13

1. artisan labourers

2. care workers

Question 14

examples of labour with elastic demand and supply

Answer 14

1. taxi drivers

2. cleaners

Question 15

why is the demand and supply of labourers inelastic

Answer 15

1. the demand for housing is inelastic and as the demand is derived the demand for labourers such as brick layers are also elastic
2. an apprenticeship is required which may take a long time.

Question 16

positives of the national min wage

Answer 16

1. alleviates poverty for those in work
2. may increase productivity as workers have more to lose
3. increase in demand as poor workers have a higher MPC

Question 17

problems with a higher min wage

Answer 17

1. employers where wages occupy a high percentage of costs the hours offered to employees may be reduced
   (relevant as many on 0 hour)
2. may be eroded by cost push inflation

Question 18

how may the national minimum wage result in an increased demand for labour

Answer 18

MPC may increase

1. workers may become better motivated to stay in the job as it it becomes more rewarding and the opportunity cost of becoming unemployed increases
   ( a small increase in NMW may not achieve this)
2. firms where market demand is inelastic may choose to invest in labour to mark mrp greater than
   (Depends on elasticities)

Question 19

what is the efficiency wage theory

Answer 19

is that increasing wages can lead to increased labour productivity because workers feel more motivated to work with higher pay.

The argument is that if workers are paid a higher wage, they have more to lose from being made redundant. Therefore, if they have a job with a wage significantly higher than benefits or alternative jobs, they will have greater motivation to impress their boss and keep it.

Question 20

what may cause a shift in the labour demand curve

Answer 20

1. change in price of final product
2. change in demand for final product
3. changes in productivity
4. change in the price of capital

Question 21

what percentage of the workers earn the min wage

Answer 21

around 5%

Question 22

what 4 factors determine wages

Answer 22

1. derived demand
2. mrp of workers
3. net advantage
4. elasticities of supply
5. monopsonies

Question 23

how may derived demand impact wages

Answer 23

1. eg if a good is highly demanded firms may be more willing to pay a higher wage for labour as labour is derrived. for example financial services are highly demanded in the UK so firms such as Barclays Bank may be more willing to pay a higher wage for them.

Question 24

how may the MRP of workers determine wages

Answer 24

some workers may have a greater MRP for example better education or technology may make a worker more productive. firms may be more willing to pay these workers a higher wage in order to attract them from other firms and benefit

Question 25

how may net advantage impact wages

Answer 25

net advantage is the financial (wage) and non financial benefits of an individual working.

for example many workers may be unwilling to work as a elevator installer or in the army as a result of the life and health risks.

as a result in order to attract workers into the industry high wages are required

Question 26

how may elasticities of supply effect wages

Answer 26

if a job has high entry requirements and mire skilled such as a brain surgeon the supply may be inelastic. as a result a rise in demand may see a higher rise in wages as shown on my diagram above

Question 27

why may MRP be hard to determine wage

Answer 27

1. if it is hard to measure output the correct wage may not be assigned
2. in markets where supply is elastic an increase in mrp may not have a great impact on determining gate wage

Question 28

how is tech change making markets more contestable

Answer 28

1. less need for a physical store so lower start up costs needed (eg clothing industry)
2. easier to advertise online which may makes existing brand loyalty less of an issue
3. improved information provision and consumers may be better informed to with producers

Question 29

how has tech change made markets less contestable

Answer 29

eg in the car industry those with high amounts of existing machinery may benefit technical economies of scale.