Labour Markets Flashcards

1
Q

What is the demand of labour

A

The demand for labour refers to the amount of workers employers are willing to and able to hire at a given wage rate over a given time period

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2
Q

What is the relationship between demand of labour and wage rate

A
  • inverse relationship
  • higher wage rate means firms cannot afford to take on any more workers
  • lower wage rates leads to substitution effect which increases demand of labour
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3
Q

What causes an extension and contraction in demand of labour

A

-Lower wage rate causes an extension In demand of labour
- higher wage rates causes a contraction in demand of labour

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4
Q

What are the causes of shifts of demand of labour

A
  • consumer demand
  • changes in the price labour produces
  • changes in labour productivity
  • employment subsidies and tax incentives
  • changes in the price of capital goods
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5
Q

Hwo does consumer demand affect DOL

A
  • increased consumer demand means that firms need to increase production and this requires increasing workers
  • decreased consumer demand means less output needs to be created so there is less demand of labour
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6
Q

How does the price of goods labour produces affect DOL

A
  • an increase In price gives firms the incentive to maximise profits by increasing supply of this good -> requires an increase in production and therefore more workers needed
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7
Q

How do changes in labour productivity affect DOL

A
  • increase in labour productivity makes labour more cost effective compared to investing in new capital for firms -> due to this there is an increase in the demand of labour
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8
Q

How do changes in the price of capital goods affect DOL

A
  • The direct substitute for workers is capital goods
  • decrease in the price of capital goods means the demand for labour decreases
  • increase in the price of capital goods means the demand of labour increases
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9
Q

What is derived demand

A

Derived demand refers to the demand of a factor of production which is used to produce and other good or service

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10
Q

Due to DOL being derived demand what happens in a boom and recession

A
  • In a economic boom, the demand for goods and services increases so DOL increases
  • in recession, demand for goods and services decrease therefore DOL decreases leading to cyclical unemployment
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11
Q

Give an example of cyclical unemployment in an industry

A
  • Construction industry
  • in an economic downturn, the demand for houses decreases leading to cyclical unemployment for construction workers
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12
Q

What is the elasticity of labour demand

A

Elasticity of labour demand refers to the responsiveness of labour demand given a change in wage rate

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13
Q

What factors affect elasticity of labour demand

A
  • labour costs as % of total costs
  • ease and costs of factor substitution
  • ped of the produced product
  • time
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14
Q

What is the individual labour supply

A

Individual labour supply refers to the amount of hours of labour a individual is willing to supply at at given wage rate

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15
Q

What is the opportunity cost of supplying labour

A

Leisure time

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16
Q

What two effects does an increase in wage rate lead to

A
  • substitution effect
  • real income effect
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17
Q

What is the substitution effect

A

The substitution effect occurs when an increase in wage rate leads to the opportunity cost of leisure time increasing which incentivises people to work more and have less leisure Time

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18
Q

What is the real income effect

A

The real income effect is that an increase in wage rate brings people closer to their target income and encourages them to have more leisure time

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19
Q

Draw the individual labour supply curve

A

Backwards bending
Wage rate
Hours of labour supplied

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20
Q

What effect is stronger at lower wage rates

A

Substitution effect is stronger at lower wage rates

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21
Q

What effect is stronger at higher wage rates

A

Income effect

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22
Q

What is the industry labour supply curve

A

The industry labour supply curve refers to the amount of workers which are willing to work in a given industry

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23
Q

What shape is the industry supply curve

A

Upward sloping

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24
Q

Show the impacts of a wage rise and wage decrease on industry supply curve

A

An increase in wages will lead to a extension in supply
Wage decrease will lead to a contraction in supply

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25
Q

What factors cause a shift in labour supply curve (non wage factors)

A
  • wages in substitute occupations
  • non wage benefits (pensions, canteen, company car)
  • barriers to entry (qualifications, skills, experience, age)
  • overtime
  • size of working population
  • increase in the occupational mobility of Labour
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26
Q

How does wages in substitute occupations affect labour supply

A
  • higher wages in substitute occupations -> more workers will go work there -> leftwards shift
  • lower wages in substitute occupations -> more workers join our industry -> rightwards shift
27
Q

How do barriers of entry affect supply

A
  • higher barriers to entry ( qualifications and experience) -> less workers able to enter -> leftwards shift
  • lower barriers to entry (qualifications needed) -> more workers able to enter -> rightwards shift
28
Q

How does overtime affect labour supply

A
  • overtime allows workers or increase their wage
  • very lucrative this additional opportunity
  • more workers want to join this industry
29
Q

How does the size of working population affect labour supply

A
  • increase in the size of the population -> increase in the labour workforce -> more people join industry
  • birth rates increase, detah rates decrease, increased migration (net immigration is positive)
30
Q

What is the elasticity of labour supply

A

The elasticity of labour supply is a measure of the responsiveness of labour supply given a change in wage rate

31
Q

What factors affect the elasticity of supply

A
  • natural of skills and qualifications needed
  • nature of the vocation
  • time peiid
32
Q

How does the nature of skills and qualifications affect Elasticity of labour spills

A
  • if there are specific skills and qualifications needed -> supply is more inelastic
  • if training needed is lengthy and costly.-> supply is inelastic
  • minimum skills needed is low
33
Q

How does the nature of vocation affect elasticity of labour supply

A
  • if the job is in the nursing and caring profession, people are less worried and responsive to a change in wage rate
34
Q

How does time period affect elasticity of labour supply

A
  • in the short term, elasticity of labour supply is inelastic
  • takes time to earn qualifications and training
  • if they are geographically and occupationally mobile -> supply is elastic
35
Q

What is geographical immobility of labour

A

Geographical immobility of labour refers to barriers which prevent a person from being able to move from one area to another to find work

36
Q

What are some reasons for geographical immobility of labour

A
  • family and social ties
  • financial costs of moving and selling house (removal costs and selling the house)
    Hugh costs kf renting
  • cultural and language barriers
  • different costs of living in different areas (regionals and countries)
37
Q

What is occupational immobility or labour

A

Occupational immobility of labour refers to barriers factors of production face in jointing other industries in the economy which lead to them being unemployed and underutilised

38
Q

What factors cause occupational immobility

A
  • skill gaps
  • training schemes
  • experience gaps
  • confidence and motivation
39
Q

How do skill gaps affects occupational mobility

A
  • people may lack the necessary tarfersble skills which allows them to join another industry of the economy
40
Q

How do training schemes affect occupational mobility of labour

A
  • unemployed people lack the finances to afford training schemes whuch can increase their human capital and employability
  • leads them to be occupatiomally immobile
41
Q

How do experience gaps affect occupational mobility of labour

A
  • unemployment leads to gaps in a persons cv which makes them unattractive to potential employers
42
Q

How does worker immobility cause labour market failure

A
  • cause of structural unemployment and economic vulnerability as people harder to find work and towns with low mobility are exposed to external shocks
  • increases relative poverty -> low earning damage lifetime income and towns with low mobility are open to economic deprivation
  • loss of economic efficiency -> workers are not being used which affects output
43
Q

How does a monopsony in labour markets cause labour market failure

A
  • a monopsony is a single or dominant employer in the labour amrket
  • this gives them buying power over potential employees which is wage settting power
  • may set wages not equal to marginal revenue product of people they employ
  • lower wages compared to competitive conditions leads to more people in working poverty
44
Q

What are disincentives to work (cause of labour market failure)

A
  • poverty trap
  • unemployment benefits
45
Q

What is the poverty trap

A
  • poverty trap creates a disincentive for people to look for work or longer hours
  • longer hours means welfare benefits are cut
  • extra income leads to higher taxes
  • creates an incentive to work less Hours and lower income jobs as then benefits and tax isn’t cut
46
Q

What is the unemployment trap

A
  • the idea of losing unemployment benefits dissuades people from looking for a job
47
Q

What is discrimination in the labour amrkwt

A

Discrimination in the labour market is when employers use other metric and characteristics other than productivity to judge the attractiveness of a person for a job or role

48
Q

What are some causes of wage differentials in occupations

A
  • compensating wage differentials -> Higher wages for high risk jobs, poor working conditions and antisocial hour work
    -higher skills, th demand for higher skilled workers is more than lower skilled workers
  • productivity and revenue creation -> wkemrers who are more efficient and create more output for revenue are more desirable
    -trade unions -> trade unions may use their power to bargain higher wages than other non union workers
  • employee discriminatiom
49
Q

What is a gig economy

A

A gig economy is a labour market characterised by short terms work and freelance work

50
Q

What are some benefits for business of gig economy

A
  • reduced fixed costs as lower payroll expenses
  • lower investment for example Uber normally have their own cars
  • can manage hours according to expected demand of product
51
Q

What are some benefits to workers of a gig economy

A
  • flexibilityin working hours and workers can choose when to work
  • can work from home
  • provides a way to increase income in spare time If they have a low paying job
52
Q

What are some downsides of give conomy for workers and businesses

A
  • workers;
    Doubts over true flexibility
    No paid vacation and employee rights (challenged in court)
    Lack fo investment so lack of human capital development
    High job uncertainty - hard to provide for family and get a mortgage

Businesses; shrinking tax base so lower revenue for government

53
Q

What is a ageing population

A

An ageing population is when the death rates are higher than birth rates everyone getting mad old

54
Q

How can government improve labour mobility

A
  • improve the level of in work training which allows workers to develop transferable skills -> occupational iol
  • improve funding and quality in education -> helps improve the skills of labour force -> occupational iol
  • address house shortages and expensive rents -> e.g impose a maximum rent -> geographical
  • increase the affordability and reliability of transportation -> can be done through subsides -> geographical
55
Q

How can government increase incentive to work

A
  • increase the difference between work pay and welfare benefits -> welfare benefits are nto as sustainable providing the incentive to work
  • lower the burden of taxes on low income families -> provide the incentive to work as tax won’t cut into income
  • impose a minimum wage
56
Q

What is a national minimum wage

A

A national minimum wage is a wage floor that firms must pay their workers at an hourly rate
- this is set above the wage equilibrium

57
Q

What are some benefits of a minimum wage being imposed

A
  • poverty alleviation -> higher disposable income
  • lower wage differentials
  • higher morale -> higher productivity for workers
  • provides an incentive for people to work -> gets rid of the poverty gap
  • fiscal benefit to govermenr -> less spending on welfare benefits and higher tax revenue as more people working
  • helps counter monopsony power
58
Q

What are some weaknesses of a minimum wage being imposed

A
  • can lead to real wage unemployment
  • youth predominantly lose out of employment chances
  • increases costs for firms -> lower competitiveness and some firms shutdown
  • regional differences
  • can cause cost push inflation
59
Q

How does an NMW lead to real wage unemployment

A
  • minimum wage causes a contraction in supply and extension in demand which causes excess labour supply which is real wage unemployment as firms are less willing to employ people
    HOWEVER
    Dependant on the wage elasticity of demand of labour
60
Q

Why do the youth miss out due to NMW

A
  • youth lack experience and skills so firms are less persuaded to employ these workers at this higher wage
61
Q

What si an executive pay ceiling

A

An executive pay ceiling is a cap on the amount an executive fi a firm can be paid compared to the median power

62
Q

Arguments for executive pay ceiling

A
  1. equity and fairness
    - damages social cohesion when the super rich get richer
    - shareholders are also reluctant to impose controls on pay
  2. High bonuses incentives short term decisions rather than long term strategic business decisions
  3. Huge executive pays add to relative poverty and inequality
63
Q

Arguments against executive pay ceilings

A
  • many skilled executives may leave the country and go to other coutjreis
  • less high skilled executives want to enter the ukj
  • capping pay and bonuses may lead to executives being rewarded in other ways such as extensive share options
  • progressive tax may be more effective