Labour markets

Question 1

Elasticity of demand for labour

Answer 1

How responsive demand for labour is to a change in wages

Question 2

How will elastic demand effect wages

Answer 2

Lower wages

Question 3

How will inelastic demand effect wages

Answer 3

Higher wages

Question 4

How will wages being a high % of total cost effect demand (elastic or inelastic)

Answer 4

Elastic demand

Question 5

In markets where workers require few skills or qualifications, what will the elasticity of supply be?

Answer 5

Elastic

Question 6

If unemployment is high, how will this effect elasticity of labour supplied?

Answer 6

Elastic as there are many people looking for work

Question 7

In the short run, if there was in increase in wages, how does this effect elastcity of supply

Answer 7

Inelastic, as there will not be much time to apply and train for jobs etc.

Question 8

Derived demand

Answer 8

When a demand for a factor of production (labour) is derived by the demand for a good or service

Question 9

If productivity increases, how would this effect demand for workers?

Answer 9

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

Question 10

If the cost of capital decreases how will this effect demand for labour?

Answer 10

Demand decreases as labour an capital are substitutes

Question 11

How would an increase in benefits effect supply of workers?

Answer 11

Decrease supply

Question 12

How would an increase in income tax effect supply of labour?

Answer 12

Decrease supply as reduces incentive to work.
However for some people it will incentivise them to work harder so supply may increase.

Question 13

How will an increase in non-pecuniary benefits effect supply of labour?

Answer 13

Increase supply of labour, decrease wages

Question 14

How can an increase or improvement in education effect demand of labour?

Answer 14

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

Question 15

Monopsony definition

Answer 15

A single or dominant buyer of labour

Question 16

Why is the monopsony supply curve above the supply curve?

Answer 16

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.

Question 17

Trade union defintion

Answer 17

an organisation with members who are workers, which protects the rights and pay of workers

Question 18

How do trade unions increase wages?

Answer 18

• 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.

Question 19

Characteristics and conditions for a monopsony:

Answer 19

1. Single buyer
2. Limited substitute buyers
3. Price maker - willing to pay the price for what it buys
4. Downward sloping supply curve
5. Barriers to entry

Question 20

Benefits and eval to a monopsony

Answer 20

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

Question 21

Labour immobility

Answer 21

When workers find it hard to change jobs in an industry. Difficulty of workers to move from one location to another

Question 22

Policies to reduce labour immobility

Answer 22

• 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

Question 23

What will shift the labour supply curve?

Answer 23

• 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

Question 24

Wage elasticity supply of labour

Answer 24

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

Question 25

Wage elasticity demand for labour

Answer 25

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

Question 26

Reasons for wage differentials

Answer 26

• 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…

Question 27

Wage ceiling

Answer 27

• 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.