Labour Markets

Question 1

Factors affecting labour productivity

Answer 1

• Wage rate. A higher wage may make workers more motivated to work hard. If wages are low, they may be less worried about losing their jobs.
• Technology. Improved technology will enable workers to be more productive and produce more in the same amount of time.
• Management. Good working relationships and management can inspire workers to work harder. Poor labour relations can lead to lower productivity.
• Education and skills. If labour becomes better educated and gains valuable skills, they can increase their productivity.
• Flexibility of workers. Can workers take on different tasks to avoid bottlenecks.

Question 2

Factors that determine demand for labour

Answer 2

• Productivity (MPP)of workers –higher productivity = higher demand.
• Demand for the good. If there is high demand for watching footballers, clubs will be willing to pay higher wages, because there is more money in the sport. Footballers will have a high MRP.
• Substitutes to labour. In some production processes, firms could substitute workers for machines (e.g. assembly lines).
• Wages.Higher wages cause a movement along the demand curve.
• Non-wage costs. This includes paying national insurance, health insurance, and potential redundancy pay.

Question 3

What determines the elasticity of demand for workers?

Answer 3

•How essential is the worker?Can labour be substituted for capital? For example, with automated checkouts, workers can be substituted for machines and labour
demand will be more elastic.
•Number of people with qualifications and skills. If only a small number of workers have qualifications, demand will be more inelastic.
-Time period. In the short term, demand for labour will be inelastic. However, over time, it becomes easier to substitute labour for capital,so demand becomes more elastic.
•Proportion of wage costs. If labour is a high % of total wage costs, the firm will be more sensitive to a rise in wages

Question 4

What determines market supply of labour?

Answer 4

1. Wage rate. Higher wages cause a movement along the supply curve.
2. The number of qualified people and the difficulty of getting qualifications. If there were more people qualified to be lawyers, the supply curve would shift to the right.
3. The non-wage benefits(non-pecuniary) benefits of a job. This includes status, job security, danger of job, how enjoyable the job is, the length of holidays and other fringe benefits.E.g. if tube drivers have to start working nights, it may reduce supply of workers because it becomes a less attractive job.
4. Population / demographics. Net immigration into the UK has increased the supply of nurses, cleaners, and other service sector workers.