Labour Markets Flashcards
Labour
Supply of Labour: Determined by those
who want to be employed (employees)
Demand for Labour: From employers
- Labour is a derived demand, means that demand for labour comes from the
demand for what it produces
-E.g demand for people who make cars is derived from the demand for cars
Factors Affecting Demand for Labour
- Wage Rate: Wages get higher, firms consider switching production to capital, might be cheaper/ more productive than labour
- Demand for Products: Higher the demand for the products, the higher the demand for labour
- Productivity of Labour: More productive workers are, the higher the demand for them. Can be increased w/ education & training, & by using technology
Substitutes for Labour: If labour can be replaced for cheaper capital, then demand for labour will fall. Will shift demand curve for labour to the left
- Profitabality of Firm: Higher the profits of the firm, the more labour they can afford to employ
- No. of Firms in Market: Determines how many buyers of labour there is. If there is 1 employer (e.g NHS) demand for labour is lower than if there are many employers (e.g supermarket)
- Lower demand = lower wages, so trade unions try to encourage higher wages
Marginal Productivity Theory of Demand for Labour
- Theory states that demand for labour is dependent on the marginal revenue product (MRP)
- MRP = Marginal Product (MP) X Marginal Revenue (MR)
- Marginal Product of Labour: Additional output each unit of labour can produce
-
Marginal Revenue of Labour: Additional revenue derived per extra unit of
labour - Equilibrium occurs where the marginal cost of one extra unit of labour is equal to the net benefit of one extra unit of labour
- Demand curve shows MRP
Determinants of Elasticity of Demand for Labour
Elasticity of Demand for Labour: Measures how responsive the demand for labour is when the market wage rate changes
Affected by:
- Labour Costs as a Proportion of Total Costs: Higher the cost of labour as proportion of total = more elastic demand (e.g service industry)
- Substitutability: Easier to substitute = more elastic, because firms can easily to switch to cheaper forms of production (e.g capital)
- PED of Product: More price elastic the
product, the more price elastic the demand for labour
Supply of Labour
Supply of Labour: Calculated by the no. of workers willing & able to work at current wage rate multiplied by the number of hours they can work
- Influenced by monetary & non-monetary considerations
Factors Affecting Supply of Labour
Wage Rate: Upward sloping supply curve shows proportional relationship between how much worker is paid & no. of workers willing & able to work
Demographics of Population: The more people who are able & willing to work, the higher the supply of labour
- Changes w/ retirement & school leaving ages, no. of uni students & immigration
Migration: Affects supply of labour at the
lower wage rates, because migrants are usually from economies w/ avg. wages lower than UK min wage
Advantages of Work: Can influence how much people prefer to work, linked to nonmonetary advantages
- If cost of working is lower, so families can afford childcare, people are more likely to work
- If benefits of working are high (e.g potential promotion) supply of labour likely to increase
- Considers job satisfaction & how good working conditions are
Leisure Time: Leisure is substitute for work
- People choose either work or leisure, influenced by age, amount of taxes paid, how many dependents the worker has & income from not working
Trade Unions: Could attract workers to labour market, as they know their employment rights will be defended
- However, limits on workers (e.g limiting ability to strike) may cause some people to withdraw from labour market.
Taxes & Benefits: If taxes are too high & benefits are too generous, people may be more
inclined to withdraw from labour market
Training: If lots of training or high qualifications are required for job, then supply
of labour may fall
- However, if gov subsidise training, easier for workers to gain necessary skills for job, so the supply of labour could increase
Monopsony
Monopsony: When there is only one buyer of labour in the market, It means the firm has the ability to set wages
Trade Unions
Trade Unions: Aim to protect workers, secure jobs, improve working conditions & try achieve higher wages
- If trade unions try increase wage rates too much, firms might no longer able to afford to employ workers
- Could cause them to close down/reduce no. of workers they employ
- Some workers might prefer a low paid job rather than be without employment
National Minimum Wage
National Minimum Wage: Example of a minimum price, has to be set above free market price, otherwise would be ineffective
Discrimination in Labour Market
In the same job, workers can be paid differently, due to:
- Formal Education: On average, those w/ degree earn more over their lifetime than those who gain just A Levels.
- Skills, Qualifications & Training: Jobs which require more training & education offer higher wages. Training workers is expensive for firms, so they compensate by offering workers, who have already had education & training, higher wages
- Pay Gaps: Wage gap between skilled & unskilled workers has increased in UK. Due to tech. change & globalisation, has shifted production abroad
- Wages & Skills: Skilled workers produce higher outputs than unskilled workers as they are more productive, so demand for their labour is higher, able to demand higher wages
- Gender: Despite equal pay laws, women earn less than men, could be due to career breaks, fewer hours worked on avg than men, women crowded into low-paid jobs, which may only require low skill levels
- Discrimination: May be discriminated due to age, disabilities, gender & ethnicity
