MICRO Labour Markets Flashcards
Factors that affect the demand for labour
- wage rate
- demand for the product (if the rise in output greater than the rise in productivity)
- labour productivity
- substitutes (capital)
- profitability of firm
- number of employers
Factors that affect the supply of labour
- wage rate
- size of labour force
- immigration
- work-leisure
- trade unions
- fiscal intensives
- human capital requirements (e.g.training)
- non-monetary incentives (e.g.working hours)
Income effect (of a rising in hourly rate)
- Positive income effect
- Negative income effect
- When higher wages incentivise people to work longer hours in order to reach the desired income
- When a target income has been reached rising wages mean it can be maintained through less work
Substitution effect (of rise in hourly rate)
As wages increase, the opportunity cost of leisure increases, meaning more leisure time is substituted for work.
Wage differentials
- Definition
- Factors
The differences in wage rates between jobs.
- Human capital differences (some jobs require more training and education, so compensate)
- Labour is not homogenous: different MRP (i.e.productivity) and discrimination
- Labout is not perfectly mobile: occupational immobility (e.g. limited supply of doctors), geographical immobility (i.e. regional variances) and lack of perfect knowledge.
- Non-monetary considerations, e.g. anti-social hours = higher wage
- Trade union (supply restrictions), e.g. large and powerful = higher wage
- Monopsonies (wage setting ability)
Wage differentials
- Benefits
- Drawbacks
- EV
- Incentive to work hard (productivity), gain skills, qualifications and training.
- Incentive to find work and not living on welfare
- Encourages enterprise: incentive to take risk = innovation
- Trickle down effect: create jobs, consumption = multiplier, tax i.e.pregressive = redistribution (benefit poor)
- Promotes an efficient allocation of resources: e.g. workers with relevant skills are incentivised to move to areas with +D(L)
VS
- Diminishing marginal utility of income: less inequality = net gain
- Social costs (e.g.crime, depression and protests = expensive)
- Lower AD (higher income households have +MPS)
- +wealfare = budget deficit
- Trickle down effect may not occur: high earners have high MPS, may send abroad, tax avoidance (laffer curve).
EV:
- Cost vs benefits (outweigh one another?)
- Risk of government failure
- SR vs LR (e.g. innovation)
Government policies to reduce wage differentials and inequality
- Equal pay act
- Minimum wage
- Living wage
- Progressive tax
- Higher welfare benefits
Monopsony Employer
- Definition
- Chains
- When there is a single employer of labour in a market
- When a firm employs an extra unit of labour through a rise in the price level, it must increase the wage rate of all previous units of labour as well = MC>AC (WR). Only employer in the market so has price marking ability = employed at MRP=MC not AC(WR)=MRP
How to increase labour market flexibility?
- Encourage immigration
- Improve information for workers and firms
- Make easier to hire and fire
- Reduce minimum wage and trade union power
- Improve child-care
- Enable home-building in areas of high employment
- Invest in infrastructure e.g. broadband
- Government spending on education and training
- Subsidies training programs
Efficiency wage theory argues…
…rise in NMW will incentivies people to work harder improving labour productivity. This will increase the demand for labour, therefore reducing any real wage unemployment.
The ‘gig’ economy
- Definition
- Problems
A labour market in which organisations contract with independent workers for short-term engagements.
- No guaranteed pay
- Little workplace protection
- Little capital investment
Occupational vs Geographical Immobility
Occupational immobility occurs when there are barriers to the mobility of factors of production between different sectors of the economy.
Geographical labour immobility occurs when there are barriers to the mobility of labour between regions, when finding work.
