Labour Markets Flashcards
labour markets definition
The labour market includes the supply of labour by households and the demand for labour by firms
factors effecting the demand for labour (6)
Wage rates
demand for the product
prices of other factors of production
wages in other countries
technology
regulation
how do wage rates influence the demand for labour
Wage is the price of labour – as wage rates increase demand for labour contracts – since MRP of labour must be higher for it to be worthwhile employing more people – therefore less are employed
how does the demand for the product influence the demand for labour
Labour is a derived demand – no demand for product then no demand for labour – won’t employ if their good aren’t making profits – links to concept of MRP – an increase in output or price of a good will increase demand for the labour that produces that good
how do the prices of other factors of production influence the demand for labour
if machinery and equipment becomes cheap – people will switch machinery for labour – demand for labour falls
how do Wages in other countries influence the demand for labour
if wages are lower in other countries and relatively high in UK – people will be employed in other countries as it represents lower cost for business
how does technology influence the demand for labour
improvement in computers and tech – jobs are lost as work is being done by machines – less demand for labour – but demand for labour in tech industries is increasing – “by 2040, about 47% of jobs could be lost to technology”
how does regulation influence the demand for labour
as rules are set jobs disappear – while other jobs are created – regulation in labour market will discourage firms from hiring – as it is costly and time consuming – lowering demand for labour
what are the factors affecting the PED of labour (4)
- Directly correlated to the price elasticity of demand for the product
- Proportion of wages to the total cost of production
- Substitutes
- Time
how does the Direct correlation to the price elasticity of demand for the product affect the PED of labour
if a good is elastic then a rise In wages will have a large impact on the quantity the business sells – therefore businesses will reduce the number of people it employs – to make profits
how does the Proportion of wages to the total cost of production affect the PED of labour
if wages are a large proportion of costs – an increase in wages will increase costs massively – large fall in demand for labour – it will be elastic
substitutes affecting the PED of labour
such as machinery and labour in other countries – demand will be elastic – means high skilled jobs tend to be more inelastic than low skilled jobs – as labour cannot be easily replaced
Time affect on PED of labour
in the long run is more elastic as machinery can be developed and jobs can be moved – however in short run – firms have to employ workers – redundancy payments can be expensive
factors effecting the supply of labour (4)
Wages
population and distribution of age
non monetary benefits
trade unions
how do wages affect the supply of labour
supply of labour curve for an individual is backward bending curve – increase in wages leads to an increase in hours worked at first – however beyond a certain point – leads to a decrease in hours worked – however for particular occupation upward sloping curve – can increase number of hours worked in two ways – increase labour force or using existing labour force – therefore although an increase in wages may not increase hours worked – it will increase number of workers – switch from other industries or from being unemployed
how does the population and distribution of age influence the supply of labour
high population means large supply of labour – age important as they need to be of working age – migration plays a role in determining the workforce – as most migrants are of working age and come to work
how do non monetary benefits influence the supply of labour
high job satisfaction – supply of labour increases – may be associated with area e.g. London – also firms may offer perks such as private healthcare – increases supply of labour
how trade unions influence the supply of Labour
restrict supply of labour by introducing barriers to entry – e.g. degree needed for teaching
what is occupational immobility
workers find it difficult to move from one job to another due to lack of transferable skills – particularly difficult in the short term as workers may need training – but in long run may only be possible with a high cost
what is geographical immobility
difficult to move from one place to another due to cost of movement, family etc – may be no jobs in Edinburgh but jobs in London – someone from Edinburgh may not be aware of vacancies in London – they will struggle – may not be able to afford housing in new area – difficult for young people as they may not be able to afford moving out of parents home – in general affects those lower income more
effect of the UK skill shortage
could cost £90 billion a year following Brexit – 4 million to few high skilled – however 6 million too many low skilled – engineering suffering from skill shortages
what is the elasticity of supply
- Responsiveness of supply to a change in wage rates
factors effecting the elasticity of supply (3)
level of qualifications and training
Availability of suitable labour in other industries
Time
how do the level of qualifications and training effect the elasticity of supply
since if there is a high level of qualifications needed for job – people will not easily be able to take up the job – therefore supply of labour will be inelastic
how does the Availability of suitable labour in other industries affect the elasticity of supply
companies can poach workers from other industries – will be more elastic
how does time effect the elasticity of supply
in long run supply of labour is more elastic as people have time to train – however if the job is vocational it will be inelastic – since even if wages fall people won’t leave their job
labour market issues (3)
Skills shortages
retirement
wage inequality
how do skill shortages cause labour market issues
Uk suffers from gographical and occupational immobility – e.g even if there are enough engineers – there aren’t enough in certain areas
how does retirement cause labour market issues
rising life expectancy – means an increase of people reaching retirement age – baby boomers reach retirement – negative effect on Gov budget – pensioners makeup over 50% of welfare spending – retirement age continues to rise – gov encourage people to save their own pensions
how does wage inequality cause labour market issues
those on the highest wages seen their wages grow by a bigger percentage than those on lowest wages – questions of relative poverty and the level of redistribution required
