Mod 5 Flashcards
5.1 Where does demand come from in labour markets?
Demand comes from employers of labour, which are businesses/firms.
5.1 Where does supply come from in labour markets?
Supply comes from the owners of labour which are households/individuals in exchange for wages.
5.1 What is demand for labour?
Demand for Labour is a “derived demand”; demand for labour is derived from the demand for the good or service it is used for producing. E.g. if the quality of inputs used to produce an output falls, so does the quality of the good.
5.1 What are factors influencing the demand for labour?
- Output of the firm
- Aggregate Demand
- Industry Conditions
- Selling techniques - Cost of other inputs
- Productivity of Labour
5.1 What does output of the firm refer to?
Due to derived demand, the amount a firm produces – it’s output - directly influences the amount of labour the firm demands. When firm output is larger, demand for labour is larger and vice versa.
5.1 What is aggregate demand?
Aggregate (total) Demand = GDP.
Higher GDP = more output = more labour demand (leading to low unemployment) and vice versa.
5.1 What are industry conditions?
Changing tastes of consumers, process of creative destruction. Popular/growing industries will demand more labour.
5.1 What are selling techniques?
The effectiveness of the individual firm’s selling techniques (e.g. advertisements, appropriate pricing) determines their output.
5.1 What are the cost of other inputs?
Firms decide how to produce their product by combining FOP. If Capital is cheap relative to labour, firms will choose to substitute away from Labour.
5.1 How is demand for labour affected by foreign labour?
Affected by the relative attraction of foreign labour, which can be used as a substitute input.
Many businesses choose to outsource/ offshore, thus lowering domestic demand for labour.
5.1 What is the productivity of labour?
Total Output / Labour Input
5.1 What happens if you increase the quantity of labour, ceteris parabis?
Increasing quantity labour does increase GDP and shift out PPC curve, but it doesn’t increase productivity of labour.
5.1 What happens if you increase the level of capital ceteris parabis?
When we increase the level of capital, we increase productivity it helps improve the productive capacity of the other FOP
5.1 What happens if you increase the level of education of workers ceteris parabis?
When we add education to our population, we not only produce more output for the same amount of labour, but we also tend to produce a higher quality of output.
5.1 What impact does an improvement in labour productivity have on demand for labour in short term?
If the economy is stagnant (aggregate demand / GDP is not changing) when labour productivity improves, businesses will be able to meet the same level of demand with less labour inputs. Demand for labour will fall.
5.1 What impact does an improvement in labour productivity have on demand for labour in long term?
If labour’s productivity improves, business profit margins improve and they expand + hire more workers. It also becomes relatively more attractive as an input in the production process. Ceteris Paribus, demand for labour rises as firms substitute away from other FOP and towards Labour.
5.2 What is supply of labour?
The ability of households to supply labour to businesses.
5.2 What are factors influencing the supply of labour?
- Remuneration
- Working conditions
3, Education, skills, experience requirements - Mobility of labour (occupational or geographical)
- Labour force Participation rate
5.2 What is remuneration?
Higher rates of remuneration (wages) will incentivise the working-age population to supply more labour, and vice versa. When remuneration is very low, leisure becomes
increasingly attractive.
5.2 What are penalty rates?
Penalty Rates: higher hourly rates given in
exchange for working: weekends, public
holidays, late at night/ early morning, through
a meal break, etc.
5.2 How are penalty rates and price of labour related?
By adjusting the price of labour, penalty rates make labour more expensive relative to the cost of other FOP (affecting the demand side of the labour market), but also make households relatively more willing to give up leisure.
5.2 What are working conditions?
More favourable working conditions (irrespective of remuneration rates) will be more attractive
to workers and will incentivise the supply of more labour.
5.2 What are education, skills, experience requirements?
The education, skills, and experience of a workforce are
considered part of the workforce’s “human capital”.
If the requirements for available jobs are too high for/different from the workforce’s level/type of human
capital, then there will be few workers able to supply their labour (structural unemployment).
5.2 What is Occupational Mobility
Ability of labour to move between different
occupations – influenced by ability to re-train, time it
takes to re-train, flexibility.
5.2 What is geographical mobility
Ability of labour to move between different locations –influenced by the cost of relocation, willingness to
experience personal upheaval (move away from family, change children’s school, etc.).
A low level of geographical mobility will lead to a high level
of geographical unemployment.
5.2 What is the labour force participation rate?
Australia’s demographic characteristics (aging population, low birth rates) raises concerns about the ability of our working-age population to support the young dependent and elderly dependent population.
5.2 How is the labour force participation rate calculated?
Labour force divided by working age population times by 100
5.2 Is labour force participation rate always accurate?
The labour force participation rate and the amount of “work” performed in an economy is not always accurately represented by official statistics
5.2 What are “real or actual” labour force participation rates?
Domestic labour/ women’s work - Informal Economy
5.2 How does domestic labour/women’s work contribute to the ‘informal’ economy
The informal economy includes any unregistered small-scale work, e.g. street vendors, unpaid workers in a family business, home-grown crops, road-side stalls. This work contributes to a nation’s economy (goods and services are being produced which satisfy needs and wants), but it does not appear in official labour market statistics
5.2 How much does the informal economy actually contribute to GDP?
Countries have valued unpaid care work between 15% and 39% of national GDP.
5.2 In 2021 how many hours of unpaid work on average per week were done.
Men - 19.8 Hours
Women - 32.9 Hours
5.3 How important of a demographic do migrants participate in Australia’s workforce
The trend is that a higher percentage of young people in Australia are migrant workers. And a majority percentage of population growth is due to the influx in migrants.
5.3 What is categorised as unemployed?
Must be actively seeking work.
5.3 What is categorised as employed?
At least one hour of work a week, including those on paid leave etc.
5.3 What is the working age population?
Over Fifteen
5.3 What are not in the labour force?
Not looking for work, retired, or permanently unable to work.
5.3 How is the unemployment rate calculated?
Unemployed workers / Total Labour Force
times by 100
5.3 How does unemployment occur?
Occurs when people who are willing and able to work (supply of labour) cannot find a paid job (cannot match with demand for labour).
5.3 How does unemployment affect economy?
A low demand in workers cause rises in unemployment, which causes a fall in consumer spending and loss of consumer confidence, which leads to a recession.
5.3 What is long term unemployment?
Unemployed for a year or more
5.3 What is structural unemployment?
Mismatch between a workers skill and types of jobs available
5.3 What is cyclical unemployment?
When unemployment fluctuates with the business cycle
5.3 What is seasonal unemployment?
Nature of jobs that unemployments rises and falls in seasons e.g. holiday/harvest.
5.3 What is Frictional unemployment?
When people move between jobs and are actively looking for employment.
5.3 What is Hard-Core unemployment?
Individuals unsuitable for work due to personal reasons e.g. addiction
5.3 What is hidden unemployment?
People who are discouraged from looking for work
5.3 What is geographical unemployment?
Live too far away to take a job that matches your skillset.
5.3 What is underemployment?
Employed yet not working as many hours as they would like.
5.3 What is the underutilisation rate of labour?
The labour force underutilisation rate which covers the unemployed and the underemployed who want to work more hours.
5.3 How is underutilisation rate of labour calculated?
Unemployment + Underemployment
5.3 What are common types of employment?
- Standard employees, with or without paid leave.
- Independent Contractors, own their own business/ provide labour to a client under a commercial contract.
- Other business operators, operate their own business and earn income by sales revenue etc.
5.3 What is the relationship between age and type of employment.
As the age increases the amount of people who are employees decreases and the amount of people who are independent contractors increases.
5.3 Why do people work part time?
Studying
Preference
Caring for children
Couldn’t find fill time work
Job Requirements
5.3 Why are part time workers higher in underemployment?
Remembering that underemployment is people who are employed but works less hours that wanted, part time work is characterised as less hours than full time, therefore underemployment is higher if part time workers would prefer to work full time.
5.3 What is pro cyclical?
Moves with the business cycle
5.3 What is counter cyclical
Moves opposite to the business cycle
5.3 What is casualisation?
Casualisation = when a workforce has a high/increasing percentage of casual or contract positions rather than permanent positions.
5.3 What are advantages of casualisation to the economy?
- Cost savings to firms (not having to pay on-costs (entitlements))
- Workers who feel insecure about their job work harder to keep it.
- Casualisation more flexible in response to casualisation. e.g. we saw a lot of casuals and contractors let go during GFC and COVID, which may have saved the profitability of the business. (GDP)
5.3 What are disadvantages of casualisation to the economy?
- Firms can cut off emoloyment reducing household spending.
- Less incentive to invest in education and training to non-permanent staff reducing level of human capital.
- Insecure incomes make consumer confidence low.
5.4 What are reasons for differences in income from work
Age
Migrant status/cultural background
Gender
5.4 Why does age impact differences in earnings.
Age can influence weekly earnings by providing access to higher levels human capital development as older people have finished school and have more time to work, and have access to higher levels of training and educations, which increases median weekly earnings.
5.4 Why does migrant status affect income?
Skilled migrants are migrants that have left their country actively seeking work, doctors etc and are paid higher.
Humanitarian migrants, have low levels of income as they are often forced from the country, resulting in (undesirable) low levels of human capital.
5.4 Why does gender affect income.
“Motherhood penalty” - Women being the group who are culturally expected to taking time off work (maternity leave, moving to part time, leaving paid work entirely) for the purposes of raising children leads to: missed promotions, less accumulation of superannuation, loss of training/experience, less desirability as a potential employee.
5.4 What are benefits of income inequality?
Higher income workers have high APS and therefore more money to spend on capital investment.
Incentive for lower income workers to increase human capital, improved productivity of labour for higher wages.
High wages for remote work increases geographical mobility of labour.
High rewards justify risk increasing quantity of enterprise (shift out PPC due to FOP)
5.4 What are costs of income inequality?
High income earners have low APC therefore consumption expenditure is lower.
Inequality can create poverty barriers for accessing human capital development (education fee), causing low labour productivity, and lower labour force participation for higher paying jobs.
Inequality can encourage crime, increasing informal economy and decreasing tax revenue.
Low income earners can capitalise and abuse government welfare spending.
5.5 What are the two labour market institutions?
Unions - Supply of labour
Employer Associations - Demand of Labour
5.5 What is the industrial relations system?
The industrial relations system includes the processes, laws, and institutions used to “set the rules” for industrial relations.
5.5 What are industrial relations?
The relationship between suppliers of labour (employees) and demanders of labour (employers) is known as industrial relations.
5.5 What is an employer association?
An Employer Association is a body of employers who seek to further the interests of their members by activities such as:
Lobbying governments
Negotiating with trade unions
Assisting members when industrial relations issues arise
5.5 What is a Union?
A Trade Union is an association of employees who seek to further the interests of their members by activities such as:
Advocating for wage increases
Advocating for better/safer working conditions
Assisting members when industrial relations issues arise
5.5 who regulates industrial relations?
Fair Work Commission regulates industrial relations.
5.5 What are Australian workers entitled to?
Minimum Employment Standards - e.g. Annual Leave, Notice of Termination
5.5 What are industry awards?
Fair Work determines industry awards, which set minimum wages and work conditions in individual industries. Many workers are paid according to these industry awards.
5.5 What is enterprise bargaining?
Wherein employer(s) negotiate (above-award) wages and working conditions with employees. Often, unions conduct these negotiations on behalf of all employees in a company or industry.
5.5 What are common law contracts?
Other wages in Australia are determined by common law contracts. These are simple contracts detailing add-ons (e.g. bonuses) to the relevant award. They are created on an individual basis and are used often for short-term and high-income work.
5.5 Why are trade unions effective?
The collective bargaining power Unions have is stronger than the limited individual bargaining power that lone workers have. E.g. strikes.
5.5 How are trade unions affect labour?
Supply and Demand modelling suggest that by negotiating for higher wages, Unions “artificially” inflate the price of labour…
thus reducing demand for labour, leading to a surplus… a.k.a. unemployment…
5.5 What are changes to the nature of work?
Automation - Robots reduces demand of labour
Working from home - Increases supply of labour (beneficial working conditions)
5.5 Why is automation/technology beneficial for businesses and detrimental for employees?
Using technology often decreases costs per unit for businesses. With lower costs, they should be able to lower prices (assuming sufficient competition in the industry). Lower prices = more disposable income for consumers. They may save the extra money, leading to higher investment and higher capital accumulation.
The people who lose jobs in this process of creative destruction/structural change may need assistance retraining to suit the new types of jobs that appear.
