Micro part 19- Impact on labour market

Question 1

What is migration

Answer 1

Migration – movement of people between countries

Question 2

What effect does migration have on supply of labour and wage rates

Answer 2

1. Majority of migrants intend to work and are of working age so the supply of labour at all wage rates tends to increase
2. this suggests that there is therefore a downward pressure on wages however it is likely as these workers country they themselves create demand for goods.
3. This means the demand for labour will increase, so the increase in supply causing a reduction in wage rates is essentially offset by this increase in demand
4. can be exaggerated by migrants having a greater willingness to accept lower wages yet this can benefit firms by reducing their CoP

Question 3

How is migration used to solve gaps in labour markets

Answer 3

1. Often used to solve gaps in labour markets
2. e.g. when there is excess demand for a particular worker and WES is inelastic so supply cannot be increased,
3. so can look abroad for workers to increase the available pool of workers

Question 4

How can migrants affect wages of natives

Answer 4

1. Where migrants and natives compete (act as substitutes) for the same wages then an increase in migration will put downwards pressure on wages
2. typically hurt those with low-skill jobs the most
   If migrants’ skills complement those of native then it can increase productivity
3. e.g. beneficial ideas and innovation into an existing production process.
4. This is a positive externality on the human capital of native workers, which increase the MRP of native workers

Question 5

What is discrimination

Answer 5

1. when a worker is paid a wage that is lower than other workers based on non-economic reasons unrelated to productivity e.g. race or gender.
2. Can be in a form similar to price discrimination e.g. paying each worker the minimum they are willing to work for.
3. the demand for a discriminated worker is less so their w.r. is lower so have lower incomes

Question 6

What are the causes of discrimination

Answer 6

1. preference for certain groups
2. occupational crowding where a group of people is more likely to be employed in a low paid occ
3. can base it off statistics that may suggest one group of people are likely to incur greater costs
4. aiming to lower costs

Question 7

What are different forms of discrimination

Answer 7

1. refusal to employ from certain group
2. paying certain groups less
3. refusal to promote workers
4. can’t get a job in a certain occupation

Question 8

What are the costs of discrimination

Answer 8

1. producer have a smaller pool of workers to choose from or may choose a lower skilled worker for the shop. 2. This means workers may be less productive/qualified than the discriminated group, leading to x-inefficiencies
2. can increase unemployment
3. if not in a job well suited to them then their human capital will fall over time since their skills are not being utilised.
   5, This means the productive potential of the economy will fall since workers are losing productivity
4. discriminated group receives lower incomes which can increase inequality and reduce their standard of living

Question 9

What are benefits of discrimination

Answer 9

1. acts as a screening process to hire workers more statistically likely/less likely to possess certain traits
2. e.g. younger workers need more training which increases training costs for firms
3. for the worker not being discriminated against their perceived supply is lower so higher wage

Question 10

What are demographic changes

Answer 10

1. changes in the composition of a population e.g. age

2. UK has an ageing population which can pose problems

Question 11

What are some problems of an aging population

Answer 11

1. It can create a growing cost for the government in terms of pension and increased strain on social services
2. can result in tax increases
3. Reduction in supply of labour and therefore an increase in dependency ratio
4. But it can increase wages since supply is falling
5. Can change employment patterns e.g. more jobs in caring for older people

Question 12

What are incentrives

Answer 12

1. Incentives – given to people to encourage working over benefits
2. How tax incentivises work [see notes on Laffer curve]
3. Presence of minimum wage

Question 13

What is an informal market

Answer 13

1. economic activity that occurs without taxation and government regulation
2. Approximately 10% of UK GDP which is lower than EU average, likely to be larger in a developing country where there is a lack of regulation to prevent them coming into existence

Question 14

What are the advantages of an informal market

Answer 14

1. reduce unemployment, and many workers in informal sector have two jobs (one formal and one informal) which means supply of labour increases
2. employers have cheap flexible workers as don’t need to agree any contracts
3. employees have a higher net income

Question 15

What are the disadvantages of an informal market

Answer 15

1. products lack regulation so may result in allocative inefficiency. Could be producing demerit illegal goods which create many -ve externalities
2. workers are unlikely to have a pension scheme which could put them at financial risk in the future
3. working conditions may be poor as no regulation and can receive low wages
4. government doesn’t get any tax revenue

Question 16

What policies can be used to fix labour inflexibility

Answer 16

1. Geographical flexibility
2. Occupational flexibility – ability of workers to change the use of labour
3. Can reduce power of trade unions [see notes on trade union]
4. Taxes/benefits

Question 17

How can geographical flexibility be increased

Answer 17

1. It can be increased by improving information available to workers to identify jobs they may be suitable e.g. a worker in one place in the country may be unemployed and a firm in another region needs labour that matches the skillset of the unemployed workers.
2. There is excess supply in the region where the worker is unemployed but excess demand in the other.
3. can be increased by reducing housing costs in areas of excess demand for labour since high housing can act as a barrier to entry
4. improve transport infrastructure

Question 18

How can occupational flexibility be increased

Answer 18

1. can be a significant problem and lead to structural unemployment
2. can be increased by reforming the education system to give workers a basic set of skills that can be applicable to many jobs