Labour markets Flashcards
What is derived demand
where the demand for one good is dependent on the demand for another related good e.g Construction industry – demand for new office construction- demand for office space
What is demand for labour
Shows how many workers an employer is willing and able to hire at a given wage rate
Factors that affect the demand for labour
Wage rate
Increase in labour productivity
A change in technology
Changes in the number of firms
Factors that affect supply of labour
Wages, working condition, Income tax rate, school leaving age, retirement age.
Why is the labour demand curve sloping downwards
The demand curve is downward sloping because employers demand less labour as its price increases. The higher the price of labour, the more likely firms will substitute labour with capital (machinery). Also the higher wage the higher cost of production leading to higher prices less demand for products, less demand for workers.
Why is the labour supply curve upward sloping
The labour supply curve is upward sloping, the higher the wage the more workers want to be employed. They may be attracted from other industries. In the long term new entrants to the labour force may train to work in that occupation increasing supply.
Define trade unions
Trade Unions are organisations of workers that seek through collective bargaining with employers to protect and improve the real incomes of their members, provide job security, protect workers.
What does low pay rate result on DS diagram
Low pay rate results in shallow flat demand and supply lines
What does high pay rate result on DS diagram
High pay rate results in steep demand and supply lines
What are the axis on the labour diagram
Y Axis line Wage rate (W) and X axis Employment (E)
What happens to the Labour diagram when minimum wage increases
Increase in labour supply, a fall in labour demand but a shift.
What happens to the labour diagram when there is an Increase in labour productivity
An increase in labour supply, a shift outwards of labour demand
When is the labour costs elastic
When labour expenses are a high % of total costs, then labour demand is more elastic
What is the elasticity of labour demand
Elasticity of labour demand measures the responsiveness of labour demand when there is a change in the wage rate.
What is the price elasticity of demand for the final output to consumers
This determines whether a firm can pass on higher labour costs to consumers in the form of increased prices
What causes a shift in labour demand
The labour demand curve shifts when there is a change in the conditions of demand in the jobs market, A rise in consumer demand which means that a business needs to take on more workers, basically a shift in labour demand is caused by other factors than wage rate.
What is the labour supply
The labour supply is the number of hours people are willing and able to supply at a given wage rate. Not employed
What happens to labour supply when wages increase
As wages rise, other workers enter this industry attracted by the incentive of higher wages, this can also depend on the elasticity of labour supply
Factors of labour supply
Real wage rate on offer in the industry itself
Extra pay, overtime payments etc.
Wages in substitute occupations – increase in earnings for a particular job may cause people to switch their jobs
Elasticity of labour supply
Elasticity of labour supply measures the extent to which labour supply responds to a change in the wage rate in a given time period
What elasticity of supply do high skilled jobs have and why
Mainly more high skilled jobs have low elasticity as hard training and specific skills involved
What elasticity of supply do low skilled jobs have and why
low skilled jobs the labour supply is elastic because a pool of labour is available at a constant market wage rate.
What elasticity of supply do low skilled jobs have and why
low skilled jobs the labour supply is elastic because a pool of labour is available at a constant market wage rate.
What is the equilibrium wage in a labour market
The equilibrium market wage rate is at the intersection of the supply and demand for labour, Employees are hired up to the point where the extra cost of hiring an employee is equal to the extra sales revenue from selling their output.
Causes of pay differentials
Compensating wage differentials – a reward for risk-taking, working in poor conditions and during unsocial hours
Different skill levels- market demand for skilled labour (with inelastic supply) grows more quickly than semi-skilled workers
Difference in labour productivity and revenue creation – workers whose efficiency is highest and ability to generate the most revenue will earn more
What is labour market flexibility
Labour market flexibility refers to the speed and ability of a labour market to respond to a change in the economy references to occupations/skills, location, number of hours worked, pay arrangements etc
What is net migration
Net migration – The difference between immigration and emigration: The number of people moving to live in a country minus the number of people moving out of that country to live elsewhere.
Impact of migration on AD
AD: High net migration -> population grows -> High % of migrants are in paid work -> Overall rise in factor incomes -> Increase in consumer spending -> Impact on other components of AD.
Higher consumer spending, Increased investment, Higher tax revenue, Demand for house rises, possible lift to exports
How does high net migration affect labour diagram
Creates a shift in labour supply outwards (increase)
How does emigration affect labour diagram
Creates a shift in labour supply inwards (decrease)
Impact of migration on AS
Expansion in active labour force, Increase in stock of human capital, Increased in market flexibility, Rise in business start up? and Higher labour productivity?
What are the pull factors for migration
Job opportunities in richer nations where per capita incomes are higher
Good access to key public services (education, health)
Hysteresis effects – new migrants tend to go to places where others have been successfully moved to.
Higher minimum wage in some countries + access to higher state welfare benefits
Low cost of transport including airplane.
What are the push factors for migration
Civil conflict
Poor working conditions
Low wages
What are the push factors for migration
Civil conflict
Poor working conditions
Low wages
What percentage of workers are part of a union
Around 24% of workers have a union membership (called unionization)
Definition of collective bargaining
Collective bargaining is when unions together negotiate with employers over wages.
Definition of age dependency ratio
Age dependency ratios are a measure of the age structure of the population, relates to the number of individuals that are likely to be dependent on others to support their daily living.
