Labour Markets Flashcards
Derived demand
Derived demand is demand for a factor of production (like labour) that is derived from the demand of another good/service.
E.g. Demand for builders is derived from demand for houses
Productivity
Higher productivity → firms demand more workers because they’re more productive → can increase output and profit.
However → firms might demand fewer workers because now they don’t need as many workers to produce all output.
Capital Costs
Capital and labour are substitutes.
Cost of capital decreases → cheaper to buy capital → firms will decrease demand for labour
E.g. As capital costs have decreased over the years, supermarkets have invested in Self-Service checkouts and reduced demand for till workers.
Migration
Workers migrate out of a country → country’s labour supply falls
Workers migrate into a country → country’s labour supply increases
Benefits
Decreasing benefits → forces people into work → increases labour supply
Increasing benefits → people to quit their jobs to get benefits/stay unemployed → decreases labour supply
Income Tax (increase)
A higher income tax reduces the income workers keep, reducing incentive to work, decreasing supply.
But some workers need to earn a certain amount of income (e.g. to cover their mortgages for instance), so a higher tax means they’ll have to work more (to earn the same income after the tax change), increasing supply!
Income Tax (decrease)
A lower income tax increases the income workers keep, increasing incentive to work, increasing supply.
But some workers just need to earn a certain amount of income (to cover their mortgages), so a lower tax means they’ll be able to work less (to earn the same income after the tax change), decreasing supply!
An increase in online coding courses causes coders to become more productive. How is this likely to affect the labour market for coders?
An increase in productivity is unlikely to affect labour supply. It is possible that an increase in availability of online coding courses will increase labour supply but this is not due to the increase in productivity.
Demand for coders will increase because the new coding courses will increase the productivity of coders. This means each coder will be able to produce more software and make firms more profit. So, firms will demand more coders and the labour demand curve will shift to the right.
However, firms may only require a fixed amount of output. So, if coders become more productive and each coder can produce more software, firms might reduce demand for coders because they need fewer coders to produce the software they need.
How is an increase in consumption in an economy most likely to impact a labour market diagram?
An increase in consumption increases aggregate demand, meaning that firms need to produce more goods and services. They will require more workers to meet this demand, resulting in a right shift in the demand for labour.
An increase in government spending on apprenticeships and training schemes is likely to…
Firms are likely to demand more workers if they become more productive. However, it is possible that labour demand will decrease if firms only need to make a set amount of output, seeing as they will require fewer workers to do this.
What is the likely impact of an increase in capital costs on the labour market diagram?
Capital and labour are substitutes. So, if capital increases in costs, firms will demand less capital and hire workers instead. Labour demand will increase and shift right.
Non-Pecuniary Benefits
Non-pecuniary benefits are benefits of a job other than the wage received.
Like a company car or job satisfaction!
If non-pecuniary benefits are higher, the job becomes more appealing so supply will shift out to the right.
While if non-pecuniary benefits are lower, the job becomes less appealing so supply will shift in, to the left.
Education & Training (supply increase)
More training/education → more supply of skilled labour
Education & Training (changes in demand)
Demand for coders might increase because the new coding courses will increase the productivity of coders. This mean coders will be able to produce more software and make firms more profit. So firms will demand more coders.
However, if coders become more productive and each coder can produce more software, firms might actually reduce demand for coders because they now need fewer coders to produce the software they need!
