Labour Market Issues

Question 1

Why do workers join trade unions

Answer 1

Protection from exploitation and unemployment. Promotes higher pay and improved workplace standards

Question 2

How impactful are trade unions

Answer 2

Depends on:
Degree of unionisation
Profitability of employer - more profitable employers have greater scope for above equilibrium wages
Stage of economic cycle - in recession firms unlikely to accept wage increase
Legislation to limit/improve their power

Question 3

What did the 2016 Trade Union act state

Answer 3

50% if member had to vote in any industrial ballot. Raised barriers to industrial action

Question 4

What is the impact of public sector wage setting on labour markets

Answer 4

They set a benchmark for private sector wages. If they are too high, this can increase unemployment.

Question 5

What factors influence impact of NMW

Answer 5

Relative elasticities of labour demand and supply. More inelastic labour demand and supply has smaller impact on employment for a given wage rate.
Level of NMW
Time frame of implementation - makes labour demand and supply more elastic (firms have more time to adjust production process)
NMW differentials for young people - do young people get different wages

Question 6

How do you draw labour market diagrams

Answer 6

Employment on x axis
Nominal wage rate on y axis
NMW and trade union modelled the same

Question 7

Benefits of NMW

Answer 7

Addresses inequality and poverty (however zero hour contracts work against this)
Efficiency wage theory - demand rises, offsetting unemployment impact of NMW
Counter balance to monopsony power - monopsony wage is below equilibrium, NMW raises wage without raising unemployment
In reality, no clear change in employment since NMW was introduced in 1998

Question 8

What is the efficiency wage theory

Answer 8

Higher wages raise productivity because:
Raises motivation, raises opportunity cost of shirking, firms are incentivised to raise workers skills by investing in training

Question 9

Downside of NMW

Answer 9

Results in real wage unemployment, because wages are above equilibrium
Creates incentives for firms to substitute labour for capital or shift production overseas where labour is cheaper (offshoring)
They are too simplistic - may need to vary based off region/occupation
Might be inappropriate for manufacturing due to there being scope for capital labour substitution and international competition, but restaurants don’t have same issues
Poorest households often don’t have any people employed, so NMW doesn’t help reduce their poverty