Labour markets Flashcards
Elasticity of demand for labour
How responsive demand for labour is to a change in wages
How will elastic demand effect wages
Lower wages
How will inelastic demand effect wages
Higher wages
How will wages being a high % of total cost effect demand (elastic or inelastic)
Elastic demand
In markets where workers require few skills or qualifications, what will the elasticity of supply be?
Elastic
If unemployment is high, how will this effect elasticity of labour supplied?
Elastic as there are many people looking for work
In the short run, if there was in increase in wages, how does this effect elastcity of supply
Inelastic, as there will not be much time to apply and train for jobs etc.
Derived demand
When a demand for a factor of production (labour) is derived by the demand for a good or service
If productivity increases, how would this effect demand for workers?
Demand for workers would increase as they will produce more.
However, demand may decrease as they wont need as much workers to produce the same amount
If the cost of capital decreases how will this effect demand for labour?
Demand decreases as labour an capital are substitutes
How would an increase in benefits effect supply of workers?
Decrease supply
How would an increase in income tax effect supply of labour?
Decrease supply as reduces incentive to work.
However for some people it will incentivise them to work harder so supply may increase.
How will an increase in non-pecuniary benefits effect supply of labour?
Increase supply of labour, decrease wages
How can an increase or improvement in education effect demand of labour?
Demand could increase as people develop their own skills and create businesses. Will increase if their productivity increases.
However demand could decrease as the workers will now be more productive
Monopsony definition
A single or dominant buyer of labour
Why is the monopsony supply curve above the supply curve?
Because it costs more to employ an additional worker. The worker will not join the job unless they are offered a higher price. If a higher price is offered for them, they must pay everyone else the same amount.
Trade union defintion
an organisation with members who are workers, which protects the rights and pay of workers
How do trade unions increase wages?
- They can set barriers to entry which would reduce supply (teachers union, teachers have to have degrees)
- they could create a minimum wage which they would not be prepared to work for if less.
- however both of these will create unemployment.
Characteristics and conditions for a monopsony:
- Single buyer
- Limited substitute buyers
- Price maker - willing to pay the price for what it buys
- Downward sloping supply curve
- Barriers to entry
Benefits and eval to a monopsony
Consumers:
- may benefit from lower prices as lower input costs
- however if the monoposony drives other suppliers out of business could result in limited produce variety
Employees:
- if it offers competitive wages and working conditions good
- however monopsonies can use their power to depress wages
Suppliers:
- stability and reliability as a consistent buyer
- however may face pressure to accept lower prices
Labour immobility
When workers find it hard to change jobs in an industry. Difficulty of workers to move from one location to another
Policies to reduce labour immobility
- Increase investment for training programmes
- recruit skilled workers from overseas, provides a ready supply of labour
- geographical mobility policies
- improve industry image, marketing programmes
- retain ageing workforce, flexible working hours, raise retirement age
What will shift the labour supply curve?
- war/disease e.g. Ukraine
- cuts to income tax
- raise in retirement age
- higher uni tuition fees
- immigration increases the supply of labour
- demographic changes
Wage elasticity supply of labour
The responsiveness of quantity supplied of labour to a change in wages
Depends on:
- skills/qualifications
- barriers to entry and exit e.g. trade union strength
- the geographical and occupational mobility of labour
- length of training: longer training period, more inelastic
Wage elasticity demand for labour
The responsiveness of quantity demanded of labour to a change in wage
Depends on:
- PED of the final product
- highly skilled workers
- how labour intensive the industry is
- availability to substitute
Reasons for wage differentials
- formal education: those with a degree may earn more
- skills, qualifications and training: jobs with more training often mean higher wages
- demand for labour: skilled workers produce higher outputs than unskilled workers because there are more productive, demand for their labour is higher.
- gender: women still earn less even with equal pay laws.
- discrimination: age, race, gender…
Wage ceiling
- It limits how much income someone can earn. - Can be used as a means to redistribute wealth more equally
- should limit inflation
- however it could be a disincentive to innovate.
