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1. Economic Matters > Labour Markets > Flashcards

Labour Markets Flashcards

1
Q

What are the 4 factors affecting demand for labour

A
  • Productivity
  • Derived demand
  • Price of complements
  • Price of substitutes for labour
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2
Q

Explain how derived demand affects demand for labour

A

If demand for a product increases then demand for capital (labour) to help produce said product will increase such that the “derived” demand can be met

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3
Q

Explain how price of complements of labour affect demand

A

If the price of these complements increases, demand for labour will reduce as firms will be less willing and able to buy at a given price

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4
Q

What is meant by complements of labour

A

Anything that supplements labour such as national insurance, pension payments and non-pecuniary benefits

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5
Q

Explain how price of substitutes affects labour

A

If the price of substitutes goes up then the demand for labour will increase as firms are more willing and able to buy labour at a given price

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6
Q

What is meant by substitutes for labour

A

Machinery, like the cash machine at supermarkets and that

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7
Q

What is marginal revenue product MRP

A

The change in a firms revenue as a result from employing an extra unit of labour

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8
Q

What is marginal product labour MPL

A

The change in in a firms output as a result from employing one more employee

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9
Q

How can productivity increase

A
  • Staff training

- Supplementing technology

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10
Q

Explain the backwards bending supply curve giving the 2 main segments

A

The substitution effect happens as it bends up (supply is increasing) because the higher wage makes work more attractive than leisure.
The income Effect happens as it bends back(supply is decreasing with higher wage) because workers achieve a target income by working less hours.

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11
Q

state the 8 factors affecting supply of labour

A
  • Flexibility of location
  • Quantity/Quality of training
  • Respectability
  • Pleasantness of job
  • Holiday days
  • Job security
  • Convenience of hours
  • Chance of promotion
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12
Q

State the 7 causes of labour market failure

A
  • Trade unions
  • Mono/Oligopsony
  • Skill shortages
  • Discrimination
  • Immobility of labour
  • Economic inactivity
  • Minimum wage
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13
Q

Collective bargaining:

A

The process of negotiation between employees and a group of employers aimed at agreements to regulate working salaries. The interests of the employees are commonly presented by representatives of a trade union to which the employees belong.

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14
Q

Explain why the minimum wage might not cause labour market failure:

A

More money for workers -> More disposable income -> Increased spending (more C) -> Increased aggregate demand thus more derived demand for labour, increasing the price of labour close to the minimum wage

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15
Q

What are Trade Unions:

A

An organisation that represents a collection of labourers to bargain for better pay and conditions.

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16
Q

How can trade unions negotiate:

5

A
  • Can arrange meetings with higher ranks in the management structure
  • Strike!
  • Work-to-rule ( do only what is contracted to do), Refusing overtime
  • Sit-in ( workers do not leave the building )
  • Publicise, such that public puts pressure on business
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17
Q

How do trade unions cause market failure: (2)

A
  • Artificially restricting the labour supply via implementing more regulation to enter the industry, increase fees for joining and/or lowering the amount of qualifications given away, resulting in a shift to the left (contraction) of supply, raising the wages.
  • Demanding higher wages ( works the same as minimum wage ) results in unemployment and quasi-unemployment.
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18
Q

What is a monopsony:

A

Occurs when a firm has market power in employing factors of production. A monopsony means there is one buyer and many sellers.

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19
Q

How are wages determined in monopsonies:

A

Firms face the entire supply curve and as a result they must pay all their workers the same amount of the previous worker ( as opposed to an incremental amount ). Overall, the result is that MCL=D is the amount employed but for the S=D wage ( because their power ).

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20
Q

How do monopsonies cause market failure:

A

They employ less than the labour market equilibrium as a result of them employing where MCL = D

21
Q

Which two types of labour market failure juxtaposition minimizes market failure and how this works:

A

Monopsony and minimum wage, where the trade union demands to be paid the market wage. One should not that the market quantity is not met from the negotiations, thus not all the labour market failure is solved.

22
Q

Why is training of labour under consumed:

A

Training has positive externalities where societies benefits are higher than the social benefits.

23
Q

Why is labour under consumed as a result of training being under consumed:

A

Labour is less productive than it should be therefore the demand is lower than it should be which leads to a lower amount of labour consumed than should be.

24
Q

What is Becker’s theory:

A

Where firms are willing to experience higher costs to not come into contact with a certain group of people

25
Q

What is Statistical theory:

A

Firms seek to lower costs doing so on generalisations that may be incorrect.

26
Q

How does statistical theory cause labour market failure:

A

The demand for the discriminated group without proper information is lower than it should be, therefore this group is under consumed.

27
Q

What is Geographical immobility:

A

Where there are obstacles to moving to a job in a different area, such as house prices, quality of transport, etc.

28
Q

What is Occupational immobility:

A

Where there are difficulties moving to a job of different profession, such as qualification recognition.

29
Q

How does immobility of labour cause labour market failure:

A

People’s ability to work, means supply at a given level is reduced thus these people are under consumed.

30
Q

What is imperfect information and how does it work:

A

Workers may be in jobs that are less well paid and aren’t fully suited to them, or one could be unemployed because one doesn’t know of the suitable job vacancies available.
Likewise, an employer may not have the most productive workforce simply because they are not in touch with all of the potential workers.

31
Q

Why might not workers/employers look for better employers/employees:

A

The costs of going out of their way and doing mentioned search might not justify the extra private benefit they receive.

32
Q

How does economic inactivity cause labour market failure:

A

Discouraged workers represent a waste of resources and a burden on taxpayers.

33
Q

What are three solutions to market failure resulting from discrimination:

A

Anti-discrimination laws. E.g. equal pay act which states that people doing the same work should be paid the same
Quotas in some countries for minorities
Provide information about average productivity of minorities.

34
Q

How could one evaluate on quotas to stop discrimination:

A

Might make overall productivity and market failure worse as they’re only hired to meet said quota

35
Q

How could one evaluate on providing information about productivity of minorities to stop discrimination :

A

Might make Becker’s theory more prominent as it fits into people’s confirmation bias

36
Q

What are some solutions to market failure as a result from trade unions: (4)

A
  • Ban them
  • Force reduction in the amount of qualifications needed
  • Legislation to limit the power of the trade unions
  • Provide fringe benefits instead of higher wages
37
Q

How could one evaluate on the reduction in qualifications needed to solve trade union failure:

A

Could make workers less skilled and less productive

38
Q

What are some solutions to lack of information causing labour market failure: (3)

A
  • Job centres
  • Internet (Indeed, reed, linkedin)
  • Careers advice
39
Q

How could one evaluate on the solutions to lacking information:

A

Developing countries already have these solutions in place, it is developing countries that require these solutions and they have little resources to impose them.

40
Q

What are some solutions to immobility of labour: (5)

A
  • Encourage firms to relocate (subsidies, incentives)
  • Improving transport infrastructure
  • Unify qualification system
  • Increasing housing -> increase supply, drives prices down
  • Fringe benefits such as company cars
41
Q

How could one evaluate on the solutions to immobility of labour: (3)

A
  • Expensive to provide infrastructure etc
  • Negative externalities associated with building
  • Opportunity cost of subsidies and government funded projects
42
Q

Explain why someone with negative economic rent might not quit:

A

Non-pecuniary benefits

43
Q

What are transfer earnings:

A

Minimum payment required to keep that factor of production (labour really) in current use

44
Q

What is economic rent:

A

The amount above what you’re willing to be paid or needed to keep that FoP in use.

45
Q

What are the two types of inequality:

A
  • Wealth

- Income

46
Q

How is inequality measured:

A

Lorenz curve and the gini coefficient

47
Q

What are some causes of inequality: (6)

A
  • Tax system -> causes income inequality
  • Skill differentials
  • Immobility
  • Discrimination(rife)
  • Welfare system(bad)
  • Minimum wage(none)
48
Q

What are some solutions to inequality: (7)

A
  • More progressive tax system -> richer have to pay more as a % of their income
  • Higher budget for welfare
  • Investment into education/training
  • Government provided jobs
  • Government incentives for firms to relocate
  • Provision on health care
  • Corporation tax
49
Q

What are some evaluations to solutions to inequality: (4)

A
  • Laffe curve for more progressive tax system
  • Tax evasion + avoidance from richer folk
  • High opportunity cost for government funded shit
  • Minimum wage could cause inflation making people worse off

1. Economic Matters (5 decks)

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