Market Failure And Gov Roles In Labour Market Flashcards
Give various causes of labour market failure
Abuse of labour market power Imperfect information Skill shortages Economic inactivity Unemployment Discrimination Segmented labour markets Geo and occupational immobility of labour
Describe abuse of market power as a cause of labour market failure
A trade union may push the wage above equilibrium level, thereby causing unemployment
What is a bilateral monopoly? How is the wage rate then determined?
When a trade union negotiations with a monopsonist employer. Wage rate is determined by relative bargaining strengths
Give factors that influence an employers bargaining strength
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
Benefits of trade unions?
Providing a channel for communication between workers and employers
Reducing labour turnover, training and hence costs
Reduce income inequality
How may a trade union fairly seek to raise the wage rate
By pressing for employers to raise qualifications needed to enter the job
What is the influence of trade union action on employment dependant on?
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
What factors influence the extent to which unemployment causes labour market failure?
Number of people out of work, how long they are out of work
What is disequilibrium unemployment?
Unemployment arising from a lack of AD, cyclically. It is whereby AD for labour is less than AS for labour
What is equilibrium unemployment/NAIRU?
Employment existing at labour market equilibrium
Describe the drawbacks of discrimination to all parties
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
What are the 2 theories of discrimination?
Beakers theory
Statistical discrimination
Describe backers theory of discrimination
That some people may prefer to experience higher costs in order to not come into contact with certain groups
Describe the theory of statistical discrimination
The idea that some discriminate to try and reduce costs, by making generalisations about certain groups of workers and not employing these groups
Give 2 alternative causes of labour market failure
Attachment between workers and employers
Inertia, in that producers or workers may be lazy in applying and recruiting workers
How do market failures influence government costs?
State benefits, labour market legislation, spending on education, training and regional policy
Why do trade unions favour collective bargaining?
It gives them greater power and allows them to have an economic of scale in negotiation
Give 5 types of labour market flexibility
Numerical flexibility Temporal flexibility Locational flexibility Functional Wage
Describe how improved labour market flexibility can boost employment
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
Give negatives of labour market flexibility
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
How can a government achieve greater labour market flexibility?
Increased labour market information, education and training, cutting unemployment benefit, cutting marginal income tax rates
How does reducing marginal income tax achieve labour market flexibility?
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
How does government intervention influence wages and employment?
Employment of public sector workers, provision of information, regional policy, training, education, NMW, legislation
How do government reduce information failure?
Careers service that provides details on location, pay and details of jobs, job centres help the unemployed to find work
Describe regional policy
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
What 3 methods can the government use to raise the level of training to the allocatively efficient level!
Directly providing training
Subsidising training to be undertaken or provided
Passing legislation requiring firms to engage in training
How may some firms react to the introduction of a NMW, that limits the benefit of the NMW?
Cutting fringe benefits
Describe how a NMW may not cause unemployment
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
Give 6 causes of differences in geographical distribution of income
Unemployment rates Proportion of benefit claimers Qualifications and skills of the labour force Industrial structure Occupational structure Living costs
Give 6 causes of income inequality between households
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
Define wealth
A stock of assets that have a financial value
Give causes of wealth inequality
Inequality of income
Differences in entrepreneurial skills
Patterns of inheritance
Marriage patterns of the wealthy
Give 2 ways of measuring wealth and income inequality
Comparison of percentile
Gino co-efficient and a Lorenz curve
Why do some economists not believe in intervention to correct inequality?
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
Why do some economists view that intervention to correct income and wealth inequality is justified?
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
Give 5 ways government can intervene to influence the distribution of income and wealth
Taxation Benefits Benefits in kind Labour market policy Macro policy
Define absolute poverty
The inability to purchase the basic necessities of life
Define relative poverty
The situation of being poor relative to others
Give causes of poverty
Old age Sickness and disability The poverty trap Low wages Being a lone parent Reluctance to claim benefits
Describe the effects of poverty on the poor
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
Give 7 ways the government reduce poverty
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
Give pros and cons of employing older workers
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
What is the dependency ratio?
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
How are governments attempting to reduce fiscal pressures of an ageing population, whilst maintaining living standards of pensioners?
Raising the retirement age Discouraging early retirement Increasing labour force by other means Promoting personal pension schemes Encouraging a change in salary structures
Benefits of immigration?
Addition to the labour force - overcoming skill shortages, reducing dependency ratio, increasing tax revenue, allowing expansion without inflationary pressure
Disadvantages of immigration?
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
What is labour market failure?
When market forces of supply and demand fail to result in an efficient allocation of labour resources
