Labour markets Flashcards
labour market
factor market, refers to supply and demand for labour (workers)
provide supply - employees
provide demand - employers
what is labour
a derived demand, demand for labour comes from. the demand fro wha it produces
what causes movements along supply and demand curves for labour
wage rate
what is on y axis and x axis for demand and supply diagram of labour
x axis - number of employees
y axis - wage rate
demand for labour and products relationship
derived demand:
higher demand for products, higher demand for labour and vice versa
relationship between demand and productivity of labour
higher productivity of labour; higher demand of labour
- can be increased by better education+ training and using technology
affect of substitutes on demand for labour
fall in demand - as you can find cheaper capital
how does profitability affect amount of labour
higher productivity; more labour can be afforded to employ
effect of number of firms on market on demand for labour
fewer firms; fewer buyers of labour; less demand
leads to lower wages
define supply of labour/calculation
number of workers willing and able to work at the current wage rate multiplied by the number of hours thy can work
supply of labour = no. of workers at wage rate x no. hours they work
factors affecting supply of labour
- wage rate
- Population (how many willing and able to work)
- Migration
- Added e edit to work (holidays, preference to work, promotions, low cost of working to afford childcare)
- Leisure time
- Trade unions (they will know worker rights will be protected)
- Training, education, skill requirements
- Taxes + benefits (high taxes, high benefits)
2 types of market failure in labour markets
- Geographical immobility - refers to things stoping FoP moving e.g due to family, social ties, financial costs of moving, imperfect market knowledge on work, regional variations on house prices
- Occupational mobility - refers to things preventing FoP changing their use e.g labour find it difficult to change occupation, no transferable skills, insufficient education + training
Labour market equilibrium
where supply of labour and demand of labour meet
sticky wages
economic concept that Keynes stated describing how wages adjust slowly to changes in labour market conditions, as wages rates aren’t that flexible
wage differentials meaning
when workers can be paid different amounts even in the same job
reasons for wage differentials
- formal education (degree employees will earn more than someone who graduated out of A levels)
- Skills, qualifications and training (due to difficulty of job)
- Pay gaps (unskilled vs. skilled)
- Gender
- Discrimination (disability, race, age)
- Wages + skills - productivity and output of different skill level (can demand higher wages)
impact of immigration on labour markets
- more competition
- migrants bring high quality skills (increases productivity)
- lower wages
- skills of migrant workers could replace those in domestic market
why is unemployment a problem
consumers unemployed; less disposable income; standard of living falls; could have psychological affects - ruins mental health, lower welfare
hysteresis
type of structural unemployment
someone works for a long time and their skills deteriorate
where is minimum wage set on graph
set above equilibrium, above free market price
where is maximum wage set on graph
below equilibrium, below free market price
impacts of rise in national minimum wage
- no evidence of rise in unemployment (NMW is relatively low)
- yields positive externalities - increase standards of living, provide incentive for people to work
- less competitive on a global scale - cannot compete with countries with lower wages
- government will increase their tax revenue - due to higher wages; higher proportion
- harder for young people to find job as firms paying for more for labour; the skills they provide aren’t valuable
impacts of maximum wage
- limits how much income one can earn, used to redistribute wealth equally
- should limit inflation (as wages limited)
- disincentive to innovate, workers opt for less demanding work
- lead to more equal distribution of wealth in society
- controls market wage but could lead to gov. failure if they misjudge where optimum wage should be
how much government spending goes towards public sector pay
half of government spending
public sector or private sector pay more equal
public sector
what is the flexibility of the labour market
how willing and able labour is able to respond to changes in the market conditions
policies to tackle labour market immobility
- trade union power - negotiate higher wages, increase job security
- regulation - reduce regulation, increase freedoms to hire and fire
- welfare payments and income tax rates - generous welfare payments, income tax rates high - less flexibility
- training - more skilled workforce; more flexible labour market
- infrastructure - improvements helps with geographical immobility, easier to move around
- housing - more affordable; easier to move
what does it mean if the labour demand inelastic what does it mean
few or no substitutes
elasticity of demand for labour
how responsive demand for labour is when the market wage rate changes
factors affecting elasticity of demand for labour
- cost of labour as a proportion of total costs (greater proportion; more elastic)
- availability and ease to use substitute factors
- PED of product (more elastic product; more elastic demand for labour)
elasticity of supply of labour
responsiveness to the change in quantity of labour supplied to a change in wage rate
factors affecting elasticity of labour
- skills of the workforce
- length of training needed for a job
- time period (short run - inelastic, long run - elastic)
- sense of vocation (some jobs have rewards that aren’t financial; inelastic)
