Micro - Labour Markets Flashcards

1
Q

What is a labour market

A

It is a market in which labour skills can be exchanged between employers and workers for a wage rate

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2
Q

What are labour markets an example of

A

A factor market

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3
Q

What is a factor market

A

It is a market where factor inputs are bought and sold

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4
Q

In a factor market who are the buyers and sellers

A

Buyer/demand - Firms
Seller/supply - Individuals

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5
Q

What type of demand is the demand for labour

A

derived demand

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6
Q

What is the marginal cost of a worker

A

It is the additional cost of hiring one more worker
This includes his wage and non-wage costs and any effect on the wage rate paid to the workers

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7
Q

What is the marginal benefit of a worker

A

It is the extra revenue brought in by hiring an extra worker and selling his output

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8
Q

What position will an employer keep employing workers

A

Marginal benefit > marginal cost
MRP > MC
Keep employing till MRP = MC

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9
Q

How do you measure the marginal revenue of a worker

A

Measure the marginal physical product (MPP) - extra output made by the worker
Find the market value of the extra output once sold (the Price of output per good)

MPP x P = MRP

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10
Q

What do MPP and MRP measure

A

Productivity
MRP in monetary value
MPP in physical value
Both curves are an increase and then a sloping fall

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11
Q

What is another name for marginal benefit

A

MRP

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12
Q

What does the MRP curve represent in a labour market

A

The demand curve for labour

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13
Q

What is the definition of demand for labour

A

It is defined as the quantity of labour that a firm is willing and able to hire at any given wage rate

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14
Q

What causes the demand for labour curve to shift

A

Productivity
Price of the product
Derived demand for the product
Profitability of the employer
Price of substitutes for labour - capital
Price of complements to labour - capital

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15
Q

What causes movements along the demand for labour curve

A

Change in wage rate

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16
Q

What is wage elasticity of demand for labour
WEDL

A

It is the responsiveness of the quantity demanded of labour following a change in the wage rate

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17
Q

Whats the formula for WEDL

A

% change in Qd of labour/% change in wage rate

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18
Q

What sign means normal for WEDL

A

Negative

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19
Q

What determines the wage elasticity of demand for labour

A

Price elasticity of demand for the product
Proportion of total costs made up by wages
Number and availability of substitutes
Time
Labour market flexibility

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20
Q

What are the weaknesses in MRP Theory

A
  1. It assumes employers are profit maximisers
  2. It assumes that workers are identical and have the same skill
  3. It is hard to calculate MRP accurately
  4. It assumes that MRP and wage rate are independent and wage rate doesn’t affect a workers MRP
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21
Q

Why can MRP be hard to calculate

A

Hard to figure out the revenue contributions if working in a team
Hard to figure out revenue contributions if working with capital
When the output is not a physical good
When the output is not sold at a market price

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22
Q

What is the labour force

A

It is the total number of people who are in work or are unemployed but actively seeking work. These workers are described as economically active

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23
Q

What is the participation rate

A

The percentage of the working age population that is economically active -in work or looking for work

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24
Q

What is the participation rate equation

A

total number of employed and unemployed/population of working age x100

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25
Q

What are the main reasons for economic inactivity

A

Full time study
Early retirement
Full time Family care
Long term sickness
Discouraged workers

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26
Q

What are the trends in the UK labour market

A

Rising rates of self unemployment
Rising rates of part time employment
Increase in NEETS
Missing Million

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27
Q

Why are there rising rates of self employment

A

Redundant workers who can’t find employment quickly
Increased levels of net immigration
Greater incentives for risk due to falling corporation tax

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28
Q

What are NEETs

A

Young people Not in Education, Employment or Training

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29
Q

What caused the missing million

A

Brexit meant EU workers left
Rise in economic inactivity in the post pandemic world
Rising numbers of ill health from covid
Rising number going to university

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30
Q

What is the supply of labour

A

It is the quantity of labour time that workers are willing and able to supply at any given wage rate

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31
Q

What can an increase of wage rate be seen as

A

Increase reward for work
Increased opportunity cost of leisure

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32
Q

What factor cause movements in the supply curve

A

wage rate changes

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33
Q

What factors cause shifts in the supply curve

A

Change in labour force size
Immigration
Participation rate changes
Wage rate of alternative jobs
Working conditions
JSA
Retirement age

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34
Q

What factors affect the national labour market

A

Change in participation rate
Changes in net migration
Institutional changes - e.g retirement age

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35
Q

What is migration

A

It is the movement of labour either within the domestic regional economy or across national borders

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36
Q

What factors affect individual labour markets

A

Changes in the relative attractiveness of labour markets
Changes in the non-pecuniary reward for work

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37
Q

What are pecuniary benefits / costs

A

This refers to the direct monetary reward/financial cost with a job

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38
Q

What are the non-pecuniary benefits/costs

A

These refer to to any non-monetary benefits/costs of a job

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39
Q

What is wage elasticity of supply of labour

A

It is the responsiveness of the quantity of labour supplied to a particular market following a change in the wage rate offered

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40
Q

What is the equation for wage elasticity of supply of labour

A

% Change in quantity of labour/% change in wage rate

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41
Q

What does the sign for wage elasticity of supply of labour mean

A

+ = normal
- = target income/backward bending SL

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42
Q

What type of labour has a elastic elasticity

A

Unskilled
Short Training
In the Long Run
Open Borders

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43
Q

What are the causes of differing elasticity of supply of labour

A

The skill of the job/training length
Degree of full employment
Time
Occupational/Geographical immobility of labour
Immigration caps

44
Q

What are earnings

A

The total income earned from work in the form of wages, bonuses and commission

45
Q

What is a free labour market

A

It is one in which there is no government intervention in the process if buying or selling labour or wage setting

46
Q

What are wage differentials

A

They are any differences in the pecuniary reward paid to workers on the basis of their occupation, gender, age, ethnicity or region

47
Q

What are the reasons for different wages

A

Different demand and supply’s
Different elasticity’s of demand and supply

48
Q

What can the reasons for a high wage be

A

High demand
Low supply
Inelastic supply and demand

49
Q

What are the reasons for low wages

A

Low Demand
High Supply
Elastic supply and demand

50
Q

What are the functions of wage rates in the labour market

A

Allocative function
Rationing function
Signalling function
Compensation function
Reward function

51
Q

What is the allocative function

A

Wages levels adjust to bring demand and supply for labour together that prevents shortages or surpluses

52
Q

What is the rationing function

A

The function allows employers to adjust how much supply for labour they have

53
Q

What is the signalling function

A

Wage rates signal to workers where to go for the highest reward

54
Q

What is the compensation function

A

Wages offset the non-pecuniary costs in a job

55
Q

What is the reward function

A

Wages incentive’s workers to invest in their own human capital

56
Q

What are the conditions of a perfectly competitive labour market

A

Large number of small, weak employers - wage takers
Large number of small, weak workers - wage takers
Homogeneous labour - identical
Perfect mobility of labour both geographically and occupationally
Perfect information
Employers are profit maximisers

57
Q

What is the point of profit maximising

58
Q

What does the Supply of labour look like in perfect competition

A

Perfectly elastic
equal to AC and MC

59
Q

What is a monopsonist

A

It is a sole buyer of a good or service. In terms of the labour market this would mean a dominant employer of a particular type of worker

60
Q

What are the conditions of a monopsony model

A

A dominant employer of labour
All labour is homogeneous
Firms are profit maximisers
Workers negotiate individually for wages
All workers doing the same job are paid the same wage

61
Q

What is the supply and demand curve like in a monopsony

A

Supply is equal to AC and normal
Demand = MRP and normal
MC is separate from SL

62
Q

What is a trade union

A

It is an organisation of workers in related occupationsthat attempts to improve pecuniary and non-pecuniary rewards to its members through collective bargaining

62
Q

What are the conditions of a trade union in a labour market

A

Large number of relatively small and weak employers
Employers are profit maximisers
Workers are in a union and they are powerful enough to decide the wage rate
The market without the union is in competitive equilibrium

62
Q

How does a trade union affect the supply curve

A

The trade union sets a minimum wage rate so the supply is flat at that wage rate and the connects with the rest of the supply curve

62
Q

What does the strength of a trade union depend on

A

Union density - % of workers in a industry who are in a union
Number of unions

62
Q

What does the trade-off between wages and employment depend on

A

The size of the mark up
The wage elasticity of demand for labour

63
Q

What is a mark up

A

It is the difference between the forced wage rate and the competitive wage rate if there wasn’t a union

64
Q

What is a bi-lateral monopoly

A

It is a market where there is a strong monopsonistic buyer and strong monopoly supplier of labour

65
Q

What are the 3 outcomes of a bi-lateral monopoly

A

Union pushes wages up below equilibrium
Union pushes wages up to equilibrium
Union pushes wage up above equilibrium

66
Q

What does the demand and supply curve look like in a bi-lateral monopoly

A

The demand curve is unchanged

The Supply (AC) curve is flat at minimum wage and then joins up with rest of curve

The MC curve is flat at minimum wage and then jumps up to join rest of MC curve

67
Q

What is the result of wage rate below equilibrium

A

Wage rate and employment have both been raised

68
Q

What is the result of wage rate at equilibrium

A

Wage rate and employment both raised
Market back to perfectly competitive equilibrium

69
Q

What is the result of wage rate above equilibrium

A

Wage rate increased
Employment stays the same or falls
Labour surplus

70
Q

How is it decided how many are hired at different price levels

A

If the wage rate is above equilibrium the employer decides how many are hired

If the wage rate is below equilibrium the workforce decides how many workers are hired

71
Q

What is a flexible labour market

A

It is one in which wages and employment levels adjust quickly overtime in response to changes in the demand and supply of labour to ensure the scarce labour is allocated efficiently

72
Q

Why is flexible labour markets important

A

Keep the market allocatively efficient

73
Q

What directions are wages normally wage inflexible

A

They are normally flexible upwards but sticky downwards

74
Q

What are causes of wage inflexibility

A

Minimum wage rates
Maximum wage rates
National wage settlement

75
Q

What are policies that promote wage flexibility

A

Performance related pay
Remove minimum and maximum wage rates
Reduce powers of trade unions
Move away from national settlements

76
Q

What are causes of employment inflexibility

A

Difficulties in getting hold of extra staff when demand rises
Difficulties releasing unwanted labour when demand falls

77
Q

What are policies to promote employment flexibility

A

Employers have main workers and then hire more if they need to
Operate an overtime system
Multi-skilling training so they can move from job to job
Reducing employment rights for workers
Improve information flows
Improved training for unemployed people

78
Q

What are the advantages of flexible labour markets

A
  1. Allows firms to expand workers rapidly which benefits the firm and the economy
  2. Allows firms to release unwanted labour rapidly benefiting the competittivness of the firms because of small costs
  3. Makes the UK economy more attractive for inward investment
  4. Minimises unemployment reducing transfer payments
  5. Workers may benefit from flexible working arrangements
79
Q

What are the disadvantages of flexible labour markets

A
  1. Lack of trraining on short term contracts
  2. Might lead to higher job insecurity
  3. Reduction in trade union membership means workers have less rights and are poorer
  4. Less pensions means more pension poverty meaning the government will need to help more
  5. More unpredictable work times can have negative effects on families and social lives
80
Q

How has the UK changed with flexible markets

A

UK labour markets have become more flexible with shorter contracts
Expansion of the gig economy

81
Q

What is causing the demand for flexible labour markets

A

Changing business environment
A changing social environment
Government policy environment
Technological innovation

82
Q

What is economic discrimination

A

When an employer chooses who to pick based of their perceived marginal revenue productivity

83
Q

What is non-economic discrimination

A

When an employer places value on a workers characteristics that are unrelated to productivity

84
Q

What does non-economic discrimination cause and how

A

Labour market failure
Allocative inefficiency
Productive inefficiency
Unfair

85
Q

Why does discrimination happen

A
  1. The taste model - employers have a distaste for certain groups
  2. Employer ignorance or prejudice - Employers assume the productivity based on characteristics and information failure
86
Q

What policies have been made to fight discrimination

A

Equality Act 2010
Equal pay act 1970
Disability discrimination 1995

87
Q

What affects do the discrimination policies have

A

They try to make pay more equal by raising the amount paid to women or certain races
This boost though causes a reduction in the amount of women hired and the surplus of women are pushed into women dominated areas
This causes the wages to fall in this market because of the increase in supply

88
Q

Where does the gender pay gap exists

A

Across all ages - worse in middle age
Across all jobs
Across both private and public sector
All regions of the UK - apart from Northern Ireland

89
Q

What are the reasons for the gender pay gap

A

Productivity and human capital
Over representation in low paid and part time work
Under representation in high paid work
Less Unionised
Monopsony power
Lack of affordable childcare
Discrimination

90
Q

What is national minimum wage

A

It is a wage floor below which no adult can legally be paid. It operates across all industries and was introduced in 1999 by Labour

91
Q

How does national minimum wage affect the market

A

Causes a rise in market wage
Change in the level of employment depending where the wage floor is set

92
Q

What affect does NMW have on inflation

A
  1. NMW causes a rise in unit labour costs but these would only be transferred to higher prices in national markets
  2. The escalator effect - If low wage workers get a pay rise from the NMW then workers earning more will ask for a pay rise to mainatin the difference between wages
93
Q

What is income

A

It is the flow of money going to factors of production

94
Q

What is wealth

A

It is the stock of money in different ways

95
Q

What is a Lorenz curve

A

It is a curve that plots the cumulative percentage of population against the cumulative percentage of income earned by the population

96
Q

What are the different ways to measure inequality of income and wealth

A

The share of income going to different groups in society
Proportion of households who live under the poverty line

97
Q

What is the official poverty line in the UK

A

annual income of less than 60% of median income

98
Q

What is the Gini coefficient

A

It is a commonly used measure of income inequality
Goes from 0 to 1
The higher the number, the greater the degree of income inequality

99
Q

How is the gini coefficient measured

A

It is the Area between the line of perfect equality and the Lorenz curve over the total area under the perfect equality line

100
Q

What is the intended target of national minimum wage

A

60% of median wage of the country

101
Q

What the correlation between living standards and life expectancy

A

No correlation

102
Q

Whats the correlation between inequality and health and social problems

A

There is a positive correlation

103
Q

Why does relative income affect social outcomes and not absolute income

A

Pyschosocial factors such as status anxiety and status competition
Leads to higher stress