Microeco 2.4 Flashcards
A wage increase is caused by firms demanding ________ labour and this causes workers supplying ________ labour
Firms demand more
Workers supply more
Elasticity of labour demand definition
How responsive demand for labour is to a change in wages
Elastic labour demand
Firms are very responsive to changes in wage
Inelastic labour demand
Firms are unresponsive to changes in wage
What is excess labour supply known as
Unemployment
Factors that effect elasticity of labour demand
- Substitutes
- % of total cost
- Time
If labour is easily substitutable, labour demand will be _______
Elastic
If it is a large % of total cost, labour demand will be ________
Elastic
In the short run, wages are _________
Inelastic because there’s not enough time to find substitutes
Factors that affect elasticity of labour supply
- Skills and qualifications
- Unemployment levels
- Time
Few qualifications needed, labour supply is _________
Elastic
If unemployment levels are high, labour supply is _________
Elastic
In the short run, labour supply is _______
Inelastic - Little time to change jobs
Factors that increase labour supply
- Derived demand
- Productivity
- Capital costs
- Migration
- Income tax
- Education and training
How does productivity effect Labour demand
V productive = More demand for labour = Increase in labour demand
V productive = Less need for as much labour = Decrease in Labour demand
Types of labour immobility
Geographical immobility Occupational immobility (lack of skills)
Benefits of minimum wage
Ensures equity
Improves income inequality
May control deflation
Costs of minimum wage
Creates unemployment
May increase inflation due to higher production costs
Firms may relocate to benefit from cheap labour elsewhere
Benefits of maximum wage
Ensures equity
Improves income inequality
May control inflation - Lower prices due to lower costs
Costs of maximum wage
May lead to emigration of workers due to lower incentives
Lower incentives will adversely affect labour productivity
Policies to tackle occupational immobility
Government can provide vocational training
Government can subsidies firms to provide training
Government can fund apprenticeships
Policies to tackle geographical immobility
Relocation subsidies
Housing market reform to increase supply of cheap housing
If demand for labour is elastic, an increase in the wage rate will __________ the demand for labour by a __________ proportion
Decrease
Greater
What does elasticity of labour depend on
% of labour of total costs
Factor substitution (machinery)
Elasticity of demand for the product
Time period
