labour markets Flashcards
what are nominal wages
are the wages paid to labour in given period of time
what are real wages
are nominal wages adjusted to taken into account changes in the truce levels
what do most workers expect in terms of wages
Most workers expect at least an annual increase in their money wages to reflect price increases, and so maintain their real wages.
what are the main factors that effect the demand for labour
the wage rate
the demand for products
productivity of labour
the profitability of the firms
substitutes
the number of buyers of labour
factors that affect the supply of labour
the wage rate
the size of the working population
migration
peoples preferences for work
net advantages of work
work and leisure
individual labour supply
length of training wokers
berries to entry
trade unions
labour subsidies
The wage rate
The higher the wage rate, the lower the demand for labour. Hence, the demand for labour curve slopes downwards. As in all markets, a downward sloping demand curve can be explained by reference to the income and substitution effects.
At higher wages, firms look to substitute capital for labour, or cheaper labour for the relatively expensive labour. In addition, if firms carry on using the same quantity of labour, their labour costs will rise and their income (profits) will fall. For both reasons, demand for labour will fall as wages rise.
The demand for the products
The demand for labour is a derived demand, which means it is ultimately based on demand for the product that labour makes. If consumers want more of a particular good or service, more firms will want the workers that make the product.
Productivity of labour
Productivity means output per worker, and If workers are more productive, they will be in greater demand. Productivity is influenced by skill levels, education and training, and the use of technology.
what is the provditity of labour influenced by
skill levels education and training and the use of technonlogy
Profitability of firms
If firms are profitable, they can afford to employ more workers. In contrast, falling profitability is likely to reduce the demand for labour.
Substitutes
The extent to which labour is indispensable also affects the demand. If substitutes, such as capital machinery, become cheaper or more expensive, the demand curve for labour will shift to the left or right. For example, if the price of new technology falls there may be a reduction in demand for labour.
The number of ‘buyers’ of labour
The number of buyers in a market can influence total demand in a given market. A single buyer in a market is called a monopsonist, and these are relatively common in labour markets. For example, London Underground is the only firm in the UK to employ underground tube drivers. In general, when a labour market is dominated by one employer the demand for labour is less than if there are many employers. In addition, there is a tendency for the wage rate to be lower in such markets, which is one reason why trade unions form, and exert pressure for higher wages.
