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Economics Yr2 Micro > Labour Markets > Flashcards

Labour Markets Flashcards

1
Q

Define Marginal Revenue Product

A

The money value of the addition to a firm’s total output brought about by employing one more worker

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2
Q

Define Marginal Physical Product

A

The addition to a firm’s total output brought about by employing one more worker

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3
Q

What are the 5 main assumptions of the marginal revenue productivity theory of the demand for labour

A
  • Homogenous workers - in terms of ability and productivity
  • Firms have no monopsony power
  • Trade Unions have no impact on the available labour supply
  • Physical productivity of each worker can be accurately / objectively measured and the market value of the output produced by the labour force can be calculated
  • Industry supply of labour is assumed to be perfectly elastic
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4
Q

How to calculate Marginal Revenue Product

A

Marginal Physical Product x Marginal Revenue

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5
Q

How to calculate the elasticity of supply of labour

A

%change in labour supply / % change in wage rate

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6
Q

3 Factors that shift the market supply curve for labour

A
  • Change in income - Due to backward bending supply curve
  • Change in Population - Change in supply of labour
  • Change in Expectations - People staying in education longer, older people less optimistic of pension
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7
Q

4 Factors that determine the elasticity of supply for labour

A
  • Time spent training
  • Occupational / Geographical Immobility of Labour
  • Time
  • Employment / Unemployment - Availability of a pool of labour
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8
Q

How to calculate the Elasticity of demand for labour

A

%Change in QD / % Change in Wage rate

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9
Q

2 Factors that shift demand for labour

A
  • A change in Labour Productivity
  • A change in Technology
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10
Q

4 Factors that determine the elasticity of demand for labour

A
  • Availability of substitutes
  • Time period
  • Elasticity of demand for the product
  • Proportion of labour cost to total cost
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11
Q

How is demand for labour an example of derived demand

A

As it is a consequence of demand for another product

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12
Q

What is the demand curve for labour

Explain the relationship

A

Inverse

Due to the costs of production, the more workers that want to work, the less a firm can afford to pay each one

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13
Q

What does the supply curve for labour show

A

How much labour a particular worker plans to supply at different wage rates

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14
Q

What is the supply curve for labour from an individual worker in terms of hours of labour time supplied per week

A
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15
Q

Define the substitution affect

A

A higher hourly wage rate makes work more attractive than leisure, so workers substitute labour for leisure

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16
Q

Define the Income Effect

A

An increase in the hourly wage rate means a higher real income, and if leisure is a normal good, the quantity of leisure demanded goes up which means a reduction in the quantity of labour supplied.

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17
Q

Define Net advantage

A

The sum of the monetary and non-monetary benefits of working

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18
Q

What is a monetary benefit of working

A

The utility/welfare derived from the wage

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19
Q

What are non-monetary benefits of working

A

The utility derived from other aspects of working

Job satisfaction

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20
Q

What is the supply curve for the total number of workers willing to supply labour

Explain the relationship

A

Due to the incentive for workers to work with a higher wage

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21
Q

What is a tight labour market

A

A labour market where unemployment is low

Workers have the power

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22
Q

What is a loose labour market

A

A labour market where unemployment is high

Firms have the power

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23
Q

Diagram for a perfectly competitive labour market

A
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24
Q

Name 4 assumptions of an Perfectly Competitive Labour Market

A

Firm is a wage taker

Many buyers and sellers

Perfect Information exists

No barriers to entry

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25
Q

In the PCLM market, why the S=AC=MC line flat

A

As supply is perfectly elastic

The firm is a wage taker, so doesn’t determine the wage rate. So AC and MC are constant

26
Q

Where is the point of profit maximisation when selling the output produced by labour

A

When MRPL = MCL

27
Q

What is a competitive firm’s level of employment/demand for labour at each wage rate

A

MRPL=W

28
Q

Define Monopsony

A

When there is only one buyer in a market

29
Q

What is monopsony power

Give an example

A

The market power exercised in a market by the buyer of a good or the services of a factor of production eg. labour, even though the firm isn’t a pure monopsonist

eg. the market for firefighters

30
Q

Explain the relationship between the supply curve and average cost curve in a monopsony labour market

A

The supply curve is the average cost curve

As more workers will be willing to supply labour if the wage rate (Average cost) is increased

31
Q

Diagram showing how monopsony power can lead to the exploitation of workers

Explain it

A

W1 is the equilibrium wage rate, where Labour demand=Labour Supply

W2 is the profit maximising wage rate, where MRPL=MCL

However, using the ACL (Labour Supply curve) one can see that the wage rate a monopsony firm only needs to supply to achieve an employment level E2 is just W3

32
Q

What is an imperfectly competitive labour market

A

A labour market where firms have monopsony power

33
Q

What is a trade union

A

An organisation of workers who join together to maintain and improve their conditions of employment , including pay

34
Q

Define Collective Bargaining

A

A process by which wage rates and other conditions of work are negotiated upon by a union or unions with an employer or employers

35
Q

Diagram for a trade union in a perfectly competitive labour market

Explain it

A

E1, W0 is the equilibrium wage rate (DL=SL)

The trade union bargains to increase the wage rate to W1. E3 is the limit - the no. of workers who will be very happy with that wage rate.

So the blue line becomes the effective trade union supply curve : STU

It’s horizontal before E3 as the firm is forced by the trade union to pay a wage rate of W1, no matter the level of employment

However, now demand for labour has decreased to E2 so there is unemployment due to an excess supply of labour. Unemployment is the difference between E3 and E2

36
Q

What are 4 points that can be used to evaluate trade unions

A

Is the trade union in a monopsony labour market

Strength of the trade union power, closed shop trade unions are illegal - power is based on union density. Less power means less distortion

Success of TU - Can be measured by union Mark up

Real world evidence proves the limited power of trade unions

37
Q

Define Union Density

A

Proportion of the workforce in a given profession who are part of a certain trade union

The higher the proportion, the more powerful, the more distortion in the market

38
Q

Define Union Mark up

A

The difference in wage between what workers are getting who are part of a Trade union in a given profession and those who are not in a Trade union

39
Q

How has the power of Trade Unions become limited since the 70’s

A
  • Legislation
    • Closed shop trade unions illegal, must be mulitple TU’s
    • Strikes can only happen if 75% of workforce agree
  • Restructuring of UK economy
    • Growth of service sector where there wouldn’t, just be 1 big employer, instead many smaller employers. Harder fight against many different firms
  • Competitive pressures due to globalisation, firms now can’t increase wages as easily.
40
Q

Diagram for a Monopsony Labour Market with Trade Union Intervention

Explain it

A

Monopsony firms want to charge W1

Trade union bargains to get wage rate increased to WTU which closer to the equilibrium (Not what is shown in diagram but that’s how it should be)

Up to this employment level, wage rate is constant, so MCL and ACL are flat.

But then after ETU, wage rate increases, so ACL starts to increase from WTU and MCL starts to increase from the point it would be at if there had been no TU. So it jumps up to that point.

41
Q

What affect does a Trade Union have on a monopsony labour market

A

Increases wages and employment closer to the PCM outcome

42
Q

What affect does a trade union have on a perfectly competitive labour market

A

Wages increase but employment falls

43
Q

Explain a point for evaluation of trade unions in a monopsony labour market

A

How valuable they are - how powerful the monopsony firm is.

The bigger the difference between the WMonopsony and WE the more powerful the monopsony is

So the larger the difference the trade union can make as it can increase wages by a larger extent

44
Q

Define National Minimum wage

A

A minimum wage rate that must by law be paid to employees

45
Q

What is a national minimum wage similar to in terms of its affect on any type of labour market.

Why

Therefore, what affect does a national minimum wage have on a PCLM and Monopsonistic labour market

A

Similar to Trade union intervention

Both increase the wage rate above what firms wish to pay

PCLM: Increases wage but causes unemployment

Monopsony: Increases wage and increases employment

46
Q

Explain 5 benefits of a National Minimum Wage

A
  • Reduces wage differentials
  • Incentive to work
  • May increase productivity
    • Boosts morale
  • Incentive for firms to increase human capital
    • Make the most of workers as average costs are higher
  • Counter Monopsonist employer
    • Reduces monopsonist power as they must increase wage
47
Q

Name 5 disadvantages of a national minimum wage

A
  • Real wage unemployment
    • Diagram
    • Especially youth who have a lower MRP - less skills, productivity - harder to justify employing them
  • Those not on NMW may ask for higher wage to keep differential
  • Higher cost to firms
    • Lack of competitiveness for firms and businesses/go out of business
  • Doesn’t account for regional differences in costs - living costs higher in London than in Newccastle
  • Can affect gov. finances due to state employment
    • UK gov. employs a disproportionately large amount of NMW workers
48
Q

Explain a point of evaluation against real wage unemployment due to a NMW

A

Depends on elasticity of Labour Demand/supply

More inelastic = Less unemployment

49
Q

Diagram for real wage unemployment

A
50
Q

Explain 5 causes of labour market imperfections

A
  • Labour is not homogenous
    • Discrimination, different MRPs
  • Non Monetary considerations
    • Low non-monetary benefits will decrease labour, may need compensating wage differentials
  • Labour immobility
    • Geographical/skills/lack of perfect knowledge
  • Trade unions/supply restrictions
    • Power of trade unions-union density - more power over wages
  • Monopsonies - wage setting ability
51
Q

What are compensating wage differentials

A

When low monetary benefits cause a lower supply of labour, so wages are increased to compensate

52
Q

What are labour market impefections

A

Factors that may stop a labour market from operating as a PCLM

53
Q

Define Wage discrimination

A

Paying different workers different wage rates for doing the same job

54
Q

Explain 5 benefits of wage differentials

A
  • Incentives
    • To gain qualitifactions to boost MRP and access those higher wage professions - More productivity, LR growth
  • Trickle down effect
    • Benefits will be felt by lower income earners through more jobs, better gov. spending..economic growth
  • Encourage enterprises
    • People know if they take the risk and it’s successful, their income will grow
    • Will create jobs, drive down costs, benefits of innovation
  • Encourages work, not welfare benefits
    • Can be earning a much higher wage, less costs for gov. to pay
  • Efficient allocation of resources
    • Where wages are higher, the most productive workers will move there
55
Q

Explain 5 disadvantages of wage differentials

A
  • Income inequality
    • More welfare spending
    • Can reduce growth - the poor have highest MPC and the rich have highest MPS
    • Social costs - crime, divorce, worse health
  • Trickle down effect
    • May not happen
    • Multiplier effects may not occur as rich don’t spend, may send money abroad or save
    • Tax evasion
  • Gov. solutions are limited if they are the cause
    • If they are a monopsonist employer, it’s harder for them to raise wages to solve problem
56
Q

Explain 3 points for evaluation of the wage differentials argument

A
  • How much inequality
    • Are the costs of it greater than the benefits
    • If its small inequality, benefits may outweigh costs
  • Risk of government failure
  • SR vs LR
    • Greater benefits in LR
    • Trickle down effect, incentives, innovation..
    • But SR issues may cause more issues in the LR as inequality gets out of control
57
Q

What is a condition necessary for wage differentials

A

Employers being able to identify/seperate groups of workers

58
Q

What is wrong with the Government mandated gender pay gap data published by firms

A

Doesn’t break down earnings by characteristics that can affect an individual’s pay

So makes no allowances for the different roles available in the firm

59
Q

Give an example of how Firm’s gender pay gap information is misleading

A

Easy reported a 54.1% hourly pay gap - 2018

But 71% of the cabin crew who would earn under £24k are female

While 5% of pilots (making up 25% of their workforce) who earn over £98k are female

EasyJet’s gender pay gap is due to men and women taking up different roles in the firm

60
Q

Give a reason for the existence of a gender pay gap i the UK

A

The individual decisions men and women take

Taking time off to raise children eg will affect the salary one gets

61
Q
A

Economics Yr2 Micro (7 decks)

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