Labour Markets Flashcards
What is a monopsony
Sole employer of labour in a given profession e.g teachers and nurses
Features of a monopsony?
- wage makers
- max revenue by hiring at MRP is equal to MCL
- Decrease Employment (by underemployment)
- Low wages
What is a trade union and what are some features?
Association of workers formed to protect rights negotiate wages and stop discrimination via collective bargaining. Assume to be closed shop (TU monopoly supplier of labour)
What is elastic elasticity of labour demand and what are some of the determinants?
Measures the responsiveness of labour demanded given a change in the wage rate depends on sustainability of capital for labour elasticity of demand for the product cause the labour percentage of total costs and the time period .
What is the income effect?
The rising income as wages rise but with potential of individuals reaching a target income
What does trade union depend upon?
- Union density , how many members there are
- Union mark up (difference in wage of those in TU and those not)
- Real world evidence proves limited power of TUs
What are some disadvantages to Trade Unions?
Legislation (laws) can limit striking for instance 75% of members would have to agree first or even ban closed shop trade unions
Restructuring of the economy’s variety of firms so hard to structure trade unions
Affect of Trade unions on a monopsony?
Trade union controls supply of labour at given wages and makes a monopsonist a wage taker.
Increases wages and employment.
What shifts labour supply curve?
1)wage on offer at substitute occupations
2)barriers to entry
3)non monetary characteristics e.g health, education, benefits, good hours)
4)improvements in occupational mobility of labour
5)overtime
6)volume of leisure time
What is elasticity of labour supply?
Responsiveness of labour supplied given a change in wages. Lower skilled jobs are more elastic so a brick layer would respond quickly to wages but heart surgeons wouldn’t as much.
What affects the elasticity of labour supplied?
1) Skills required
2) Length of training period
3) vocation (e.g nurses, think non monetary motivation)
4) time
What is the law of diminishing marginal returns?
In the short run, as more units of variable factors (labour) are added to a fixed factor, the marginal physical product from each additional unit will eventually decrease.
What is the elasticity of labour demanded?
The responsiveness of labour demanded given a change in the wage rate. Think how many workers a firm would cut off given an increase in wages, for doctors it would be inelastic (you can’t swap a doctor out for a robot) for factory workers it would be elastic (you probably could swap out for robot).
What factors affect the elasticity of demand for labour?
1) Sustainability of capital for labour (how replaceable labour is for capital)
2) PED of product (can wages be covered by increasing price)
3) Cost of labour as % of costs
4) time period
What are the characteristics of a competitive labour market?
1) There are many workers and employees
2) labour is homogeneous
3) There is perfect information
4) Firms are wage takers
5) There are no barriers to entry/exit (no qualifications/no leave notice)
Where will firms hire up to for revenue maximisation?
Where MRP=Wages
What is the difference between wealth and income?
Wealth is a stock concept, measures the assets market value that can also generate income
Income is flow of money measured over given period of time.
Both income and wealth are mutually reinforcing (High incomes get assets leading to more incomes and more assets …)
What are the reasons for differentials in income and wealth?
1) Age, wealth accumulated over time, skills and experience improve over time (higher MRP )
2) Education (qualifications affect earning potential)
3) Ownership of financial assets
4) Ownership of property
5) wage differentials
Why do wage differentials occurs (labour market imperfections)?
Wage differentials wouldn’t exist in a perfectly competitive labour market
1) Labour is not homogeneous (different MRPs/different supplies of labour/discrimination)
2) Non monetary considerations (compensating wage differentials e.g leisure time)
3) labour isn’t perfectly mobile (occupational/geographical immobility and lack of perfect knowledge)
4) Trade unions and supply restrictions
5) Monopsony and wage setting ability
What is a good measure of income inequality and what is an evaluation point for it?
Ginin coefficient using the Lorenz curve (cum.% income against cum.% of population) Evaluation is it doesn’t represent the spread of inequality
W
Reasons why wage differentials may be beneficial for an economy?
1) Incentivises hard work (training/qualifications/skills)
2) Trickle down effect (jobs/spending/tax)
3) Encourages enterprise
4) encourages work not welfare
5) promotes efficient resource allocation
What is absolute poverty?
Incomes below a threshold ($2 a day) to access most basic life sustaining goods and services
What is relative poverty?
Incomes below a given average in society (less than 60% of median household income)
What is the difference between equity and equality?
Equity refers to fair distribution of income where as equality refers to equal distribution of income.
What are the main causes of poverty?
1) Unemployment (cyclical and structural)
2) poor education/skills
3) poor health/healthcare
4) wage differentials (relative poverty)
5) born into poverty/ single parent
6) tax cuts for well off
7) subsistence agriculture (poor countries living off of farm food)
Reasons for NMW?
1) poverty alleviation
2) reduce wage differentials
3) fiscal benefit to government (incentive to work rather than benefits)
4) increase productivity (morale boost)
5) incentive for firms to boost human capital
6) counter monopsonist employer
Reasons against a NMW?
1) potential unemployment (depends on elasticity of demanded labour)
2) youth lose out most (low MRP)
3) Those not on NMW may ask for pay rise to keep wage differentials
4) cost to business (less competitive)
5) Regional difference
6) hit to government finance (given state employment)
What is the lafer curve?
Increasing taxes will only increase tax revenue up until a point in which it will then lead to emigration (brain drain), tax evasion/avoidance and disincentives to work hard
Name 4 policies to redistribute income and wealth
1) taxation
2) Benefits
3) minimum/maximum wage (depends on incentives and employment)
4) Legislation
5) gov spending on education/training and healthcare (depends on gov finances and time)
Evaluate taxation as a measure or wealth redistribution
Increase progressive taxes and reduce regressive taxes
Counter: ladder curve incentives and loss of revenue
Evaluate benefits in redistribution of wealth and income
Transfer payments and benefits directly create incomes however can create poverty trap (relying on benefits) and worsen gov finances
What are some evaluation points for redistributing income/wealth?
1) incentives
2) gov finances
3) equity vs efficiency
4) gov failure
5) is inequality always bad
