Labour Market - NOT ON MOCKS

Question 1

Define Demand for Labour?

Answer 1

Amount firms are willing + able to pay for workers
–> a derived demand = dependent on output workers produce for firm

Question 2

What (4) Factors can influence D for Labour?

Answer 2

• Level of Consumer D for product –> D↑ –> D Labour↑
• Productivity of Labour –> Productivity ↑, less Workers needed, but payed more
• Price for Product –> P↑–> DLabour↑
• Cost of Capital (Machinery) –> Machinery expensive, DLabour↑

Question 3

Define Supply of Labour?

Answer 3

Number of workers willing + able to work at a given wage

Question 4

What (3) Factors influence S of Labour?

Answer 4

• Size of Population –> birth rates, or net migration –> Size↑, S↑
• Education + Training –> high level education / training required for certain jobs e.g. doctor
• Income tax / benefits –> Benefits reduced, or Income tax reduced –> S↑

Question 5

What are the (2) common forms of Market Failure in Labour Market?

–> (Hint - Immobility)

Answer 5

• Geographical Immobility –> e.g. lack of infrastructure to move workers around, e.g. live in Manchester but jobs in London
• Occupation Immobility –> Workers unable to move between jobs, due to specialisation or lack of education/training

Question 6

What happened in Labour Market if wages are above the Equilibrium?

Answer 6

• Wages too High
• Labour Supply high, Demand Low
  –> Excess supply –> unemployment
  –> workers have to accept lower wage or remain unemployed
  –> cause wages to fall back to equalibrium

Question 7

What happens if Wages are too low in Labour Market?

Answer 7

• Wages lower than Equilibrium
• Demand high, Supply low
  –> Excess Demand, Shortage in Supply
• Firm forced to pay workers more too keep them
  –> wages rise until hit equilibrium

Question 8

What are some (6) current labour Market issues?

Answer 8

• Ageing Population –> causes increasing Dependency ratio. e.g. UK 2018 dependency ration is 56.4 (out of 100)
• Gig economy –> workers earn income on SR contract where paid for individual tasks e.g. Uber or Deliveroo –> no job security or certain income
• Zero-hour contract –> not guaranteed a set number of hours per week –> no stable income
• Low productivity –> Uk suffered low productivity growth since 2008
• AI –> development in AI +robots impact Labour Market, jobs disappearing
• Discrimination –> proving discrimination hard, impact economy in terms of productivity, unemployment and economic growth

Question 9

What are 4 ways the Gov interfeers with Labour Market ?

Answer 9

• Minimum wages –> set above equilbirum , can result in excess supply (unemployment)
• Maximum wage –> Set below equilibrium –> result excess demand –> targeted bankers and rugby union players
• Public sector wage –> directly determines wages of workers e.g. NHS
• Policies tackling Immobility –> Reduce occupation / Geographical immobility

Question 10

Advantages + Disadvantages of Minimum wages?

Answer 10

Ad
- Prevent exploitation
- Reduce Poverty . inequality
- Eliminate Unemployment trap –> where more profitable to rely on benefits than work

Dis
- Cause unemployment
- Inflationary
- May not reflect regional difference in Cost of Living

Question 11

Advantages + Disadvantages of Maximum wages?

Answer 11

Ad
- Reduce income inequality
- Allow higher wages for middle group of workers

Dis
- Lead to shortages of certain workers e.g. if top footballers wages caped, would go play abroad
- destroy incentives for firms to attract workers

Question 12

How does the Gov reduce occupation / geographical immbobility?

Answer 12

Occupation
- Training / retraining schemes
- Apprentaships
- Reduced regulations or education requirement

Geographic
- affordable housing
- Improvements in transport e.g. Elizabeth line

Question 13

What is PED of Labour?

Answer 13

• measure of how responsive Demand for Labour is to change in wages
  –> Inelastic = 0 to -1 , Elastic = -1 and below
  –> UK = -0.4 (Inelastic)

Question 14

What influences the PED of Labour

Answer 14

• Labour Costs as proportion of total Cost –> D for Labour inelastic is Labour Costs are small part of Business Total Costs
• PED of Final Product –> PED elastic for final product, Labour also elastic
• Ease of substitues –> e.g. machinery , easy / cheap then D more elastic
• Time period under consideration –> D more elastic in LR

Question 15

What is PES of Labour?

Answer 15

Measure of responsiveness of Labour supply to change in wage rate
–> Inelastic = 0 to 1 , Elastic = 1 and above

Question 16

What are some factors that determine PES of Labour?

Answer 16

• Level of Skill required –> low-skilled more elastic, higher pool of Labour. High-skilled, inelastic
• Level of education required –> more education = inelastic
• Ease of migration –> when UK was in EU labour more elastic
• Time –> in SR labour inelastic due to contract etc.
• Mobility of Labour –> workers geographically and occupationally mobile then more elastic