Labour Markets Flashcards
Demand for labour
Derived from the demand for the products they make
Marginal productivity
Marginal revenue productivity (MRP)
The demand for labour from a firm
The addition to a firms revenue from employing an additional unit of a factor of production
MPP x P
Marginal physical product(MPP)
The addition to output from employing an additional unit of a factor of production
How productive the unit of labour is and how much revenue they make
Determinants of labour demand
Wage rates (contracts or extends)
Labour productivity
The price of substitute factors
Other labour costs (e.g. National insurance or pensions)
Determinants of elasticity of demand for labour
Percentage change in quantity of labour demanded/ percentage change in wage rate
Ease of substitution
Time
Elasticity of demand for the good or service
Proportion of labour cost to total cost of production
Determinants of supply of labour
Wage rates- (extension or contraction)
Size of working population
Non monetary factors- work conditions , Holliday, promotion prospects
Determinants of elasticity of supply
Percentage change in quantity of labour supplied/percentage change in wage rates
Time
The length of training period
Vocations
Wage differentials
Difference in wages arising between individuals,occupations, industries and regions
The determinants of relative wage rates and levels of employment in perfectly competitive in labour markets
Each unit of labour is homogenous and unable to influence the wage rate
Workers must therefore accept going wage rate determined by supply and demand at market level
Firms are wage takers have to pay market wage or else labour would work for rival firms
Firms max profit where MRP = MC (wage rate)
Perfect information
Freedom of entry and exit to the industry
Determinants of relative wage rates and levels of employment in imperfectly competitive markets
Monopsony - a market with a single dominant buyer, such as the government in relation to state school teachers
The mc of employing labour exceeds the average cost (ac)
To attract an additional worker the firm has to pay more to this worker as well as to all other employees
Trade unions
Perfect competition
Set a minimum wage creates an excess supply of labour which is essentially unemployment
Raises wages for those who keep their jobs but reduce unemployment
However if the labour are productive MRP I’ll increase and demand for labour and therefore excess supply may not exists
Trade unions
Imperfectly labour markets
Increases wage rate and employment
National minimum wage
A statutory minimum wage used to increase the earnings of the low paid
Leads to excess supply (unemployment)
However the low paid have a higher propensity to consume and create extra demand in the product market which increases workers MRP and increase demand for labour
Discrimination in labour market
Negative discrimination-
where employers treat a specific group of workers LESS favourably than others in terms of pay and employment levels
Positive discrimination-
where an employer treats a group of workers MORE favourably than others in terms of pay and employment levels
Necessary conditions for wage discrimination
Firms must have some wage setting ability, therefore the labour market must be imperfect
Distinct separate labour markets- workers unable to successfully offer their labour in a different market for a higher wage
Lack of legal protection or imperfect information about the discrimination on the part of the government
Advantages and disadvantages of wage discrimination
Advantages
Firms can reduce their wage bills and can be more competitive
May beneficial to some firms if their consumers are racially prejudiced
Can be difficult to successfully prove discrimination
Positive differentiation can boost cultural diversity and social justice
Disadvantages
May lead to some groups being underpaid and underemployed worsening relative poverty
Increase government spending on welfare benefits
Waste of scarce valuable resources
May lead to increased litigation as workers attempt to take legal action against employers
lack of cultural diversity in the work place
May Create social tensions
