Market Failure And Gov Roles In Labour Market

Question 1

Give various causes of labour market failure

Answer 1

Abuse of labour market power
Imperfect information
Skill shortages
Economic inactivity
Unemployment
Discrimination 
Segmented labour markets 
Geo and occupational immobility of labour

Question 2

Describe abuse of market power as a cause of labour market failure

Answer 2

A trade union may push the wage above equilibrium level, thereby causing unemployment

Question 3

What is a bilateral monopoly? How is the wage rate then determined?

Answer 3

When a trade union negotiations with a monopsonist employer. Wage rate is determined by relative bargaining strengths

Question 4

Give factors that influence an employers bargaining strength

Answer 4

Greater amount of financial reserves to outlast a dispute
Lower proportion of workers who are in a union
Greater degree of substitution between capital and labour
Higher unemployment rate
Level of public support for workers
Amount to which industrial action would influence production process

Question 5

Benefits of trade unions?

Answer 5

Providing a channel for communication between workers and employers
Reducing labour turnover, training and hence costs
Reduce income inequality

Question 6

How may a trade union fairly seek to raise the wage rate

Answer 6

By pressing for employers to raise qualifications needed to enter the job

Question 7

What is the influence of trade union action on employment dependant on?

Answer 7

The type of market in which employers sell their produce - if perfect competition or monopolistic, whereby only normal profits are made in long run, and so a rise in profits would lead to firms making losses and hence leaving the industry, creating output and unemployment to fall

Question 8

What factors influence the extent to which unemployment causes labour market failure?

Answer 8

Number of people out of work, how long they are out of work

Question 9

What is disequilibrium unemployment?

Answer 9

Unemployment arising from a lack of AD, cyclically. It is whereby AD for labour is less than AS for labour

Question 10

What is equilibrium unemployment/NAIRU?

Answer 10

Employment existing at labour market equilibrium

Question 11

Describe the drawbacks of discrimination to all parties

Answer 11

Group discriminated against suffers though lower wages, lower employment, motivation
Producers who discriminate have a lower pool of workers with which to choose from, limiting competitiveness and productivity
Consumers experience high prices as a result of poor productivity
Government have to pay unnecessary benefits
Economy loses out due to mid allocation of resources

Question 12

What are the 2 theories of discrimination?

Answer 12

Beakers theory

Statistical discrimination

Question 13

Describe backers theory of discrimination

Answer 13

That some people may prefer to experience higher costs in order to not come into contact with certain groups

Question 14

Describe the theory of statistical discrimination

Answer 14

The idea that some discriminate to try and reduce costs, by making generalisations about certain groups of workers and not employing these groups

Question 15

Give 2 alternative causes of labour market failure

Answer 15

Attachment between workers and employers

Inertia, in that producers or workers may be lazy in applying and recruiting workers

Question 16

How do market failures influence government costs?

Answer 16

State benefits, labour market legislation, spending on education, training and regional policy

Question 17

Why do trade unions favour collective bargaining?

Answer 17

It gives them greater power and allows them to have an economic of scale in negotiation

Question 18

Give 5 types of labour market flexibility

Answer 18

Numerical flexibility
Temporal flexibility
Locational flexibility
Functional 
Wage

Question 19

Describe how improved labour market flexibility can boost employment

Answer 19

Firms will be more likely to recruit in times of rising demand in the knowledge they can be quickly dismissed. It also attracts FDI, which creates jobs

Question 20

Give negatives of labour market flexibility

Answer 20

The chances of being out of work for short periods is increased. There is less job security, and a greater need to be occupationally and geographically mobile, which puts stress on workers

Question 21

How can a government achieve greater labour market flexibility?

Answer 21

Increased labour market information, education and training, cutting unemployment benefit, cutting marginal income tax rates

Question 22

How does reducing marginal income tax achieve labour market flexibility?

Answer 22

It means workers keep more of their wages, and therefore have greater incentives to work more hours - the unemployed will also seek work more actively, and those nearing retirement will stay in the labour force a little longer

Question 23

How does government intervention influence wages and employment?

Answer 23

Employment of public sector workers, provision of information, regional policy, training, education, NMW, legislation

Question 24

How do government reduce information failure?

Answer 24

Careers service that provides details on location, pay and details of jobs, job centres help the unemployed to find work

Question 25

Describe regional policy

Answer 25

Policies to influence the distribution of firms and people. Financial assistance can be given to relocating workers, or to firms looking to set up business

Question 26

What 3 methods can the government use to raise the level of training to the allocatively efficient level!

Answer 26

Directly providing training
Subsidising training to be undertaken or provided
Passing legislation requiring firms to engage in training

Question 27

How may some firms react to the introduction of a NMW, that limits the benefit of the NMW?

Answer 27

Cutting fringe benefits

Question 28

Describe how a NMW may not cause unemployment

Answer 28

Raised wages will raise demand for goods and services, which will in turn, raise demand for labour. Higher wages will also boost morale, cut sickness and hence boost productivity, further increasing demand for labour

Question 29

Give 6 causes of differences in geographical distribution of income

Answer 29

Unemployment rates
Proportion of benefit claimers
Qualifications and skills of the labour force
Industrial structure
Occupational structure
Living costs

Question 30

Give 6 causes of income inequality between households

Answer 30

Unequal holdings of wealth (wealth generates profit)
Differences in composition of households
Differences in skills and qualifications
Differences in educational opportunities
Discrimination
Differences in hours worked

Question 31

Define wealth

Answer 31

A stock of assets that have a financial value

Question 32

Give causes of wealth inequality

Answer 32

Inequality of income
Differences in entrepreneurial skills
Patterns of inheritance
Marriage patterns of the wealthy

Question 33

Give 2 ways of measuring wealth and income inequality

Answer 33

Comparison of percentile

Gino co-efficient and a Lorenz curve

Question 34

Why do some economists not believe in intervention to correct inequality?

Answer 34

They believe that differences in income act as signals to workers to change jobs, and differences in wealth promote saving and investment. They believe that provision of benefits above a minimum level would encourage voluntary unemployment

Question 35

Why do some economists view that intervention to correct income and wealth inequality is justified?

Answer 35

That market forces will not ensure efficient allocation of income and wealth, and low levels of income and wealth can damage the households effected, particularly future children. They also feel social division can occur

Question 36

Give 5 ways government can intervene to influence the distribution of income and wealth

Answer 36

Taxation 
Benefits
Benefits in kind
Labour market policy
Macro policy

Question 37

Define absolute poverty

Answer 37

The inability to purchase the basic necessities of life

Question 38

Define relative poverty

Answer 38

The situation of being poor relative to others

Question 39

Give causes of poverty

Answer 39

Old age
Sickness and disability 
The poverty trap
Low wages
Being a lone parent
Reluctance to claim benefits

Question 40

Describe the effects of poverty on the poor

Answer 40

Worse physical and mental health, lower life expectancy
Children receive less education, less likely to travel and hence gain fewer qualifications
Poor feel alienated from society

Question 41

Give 7 ways the government reduce poverty

Answer 41

Operating a NMW 
Cutting bottom rate of income tax
Increasing employment opportunities
Improving quantity and quality of Ed and training
Making use of trickle down effect
Provision of affordable childcare 
Increasing benefits

Question 42

Give pros and cons of employing older workers

Answer 42

They have more experience, stay with employers more, lose fewer days through short term illness. They also interact better with customers.
On the other hand they are less geographically and occupationally mobile, less flexible and more at risk of serious illness

Question 43

What is the dependency ratio?

Answer 43

Proportion of population who are too old, too young or too sick to work, and so rely on the output of those that are working

Question 44

How are governments attempting to reduce fiscal pressures of an ageing population, whilst maintaining living standards of pensioners?

Answer 44

Raising the retirement age
Discouraging early retirement
Increasing labour force by other means
Promoting personal pension schemes 
Encouraging a change in salary structures

Question 45

Benefits of immigration?

Answer 45

Addition to the labour force - overcoming skill shortages, reducing dependency ratio, increasing tax revenue, allowing expansion without inflationary pressure

Question 46

Disadvantages of immigration?

Answer 46

Countries which immigrants come from suffer skill shortages, low paid domestic workers may be undercut by foreign workers, putting downward pressure on wages. Additional pressure on services. They may also repatriate their income

Question 47

What is labour market failure?

Answer 47

When market forces of supply and demand fail to result in an efficient allocation of labour resources