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Economics of Labour Markets > Term 1 - Intro, Chapter 1 & Chapter 2 > Flashcards

Term 1 - Intro, Chapter 1 & Chapter 2 Flashcards

1
Q

Work out the UK’s average earnings

A

GDP = £1500bn
Wage bill = 70% of GDP
Workforce = 30m

1500bn x 0.7/30m = £35,000

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2
Q

What is the equation for labour productivity?

A

GDP/L

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3
Q

Explain how there could be a reduction in absolute poverty but not relative poverty

A

If bottom 10% of workforce experiences an increase in real pay = reduction in absolute poverty

However, if top 10% experience an increase in real pay that’s greater than the bottom 10% = no reduction in relative poverty

  • Top 10% doing well will trickle down to the bottom 10%
  • Better for absolutely poverty to decrease rather than relative
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4
Q

Draw the worker and firm surplus diagram and explain

A

Look at notes

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5
Q

Draw the free trade vs. minimum wage diagram and explain

A

Look at notes

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6
Q

Define pareto improvement

A

Where someone gains without another losing

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7
Q

Define a potential pareto improvement

A

Where gainers’ gains > losers’ losses

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8
Q

The pareto criterion would be satisfied as long as…

A

…prices are fixed enough to make D = S

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9
Q

Draw the diagram illustrating the effects of welfare benefits on unskilled v skilled workers and explain

A

Look at notes

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10
Q

Draw an individual’s labour supply curve and explain

A

Look at notes

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11
Q

Draw an individual’s labour supply graph with indifference curves and explain how people have a choice over working hours

A

Look at notes

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12
Q

Draw a diagram illustrating how a tax increase effects the indifference curves on an individual’s labour supply graph

A

Look at notes

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13
Q

Draw a diagram illustrating how welfare benefits cause low wage workers to drop out of the labour market

A

Look at notes

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14
Q

What is the replacement rate equation?

A

B / (1-t)w

OR

Income out of work/income in work

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15
Q

Draw a diagram illustrating the effects of a WTC on unskilled workers and explain

A

Look at notes

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16
Q

Draw a diagram showing the effects of a work subsidy and explain

A

Look at notes

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17
Q

Define reservation wage

A

Amount someone is prepared to work for

18
Q

What is the LFP equation?

A

employed + unemployed / population

19
Q

Explain why women’s true (FTE) LFP is less than 54%

A

Because women’s % part-time is high = 50%

To calculate FTE-adjusted LFP, LFP*, assume a part-timer equals half a full-timer in FTE terms

Then if all women were part-time, LFP* = 0.5x54% = 27%

If half women were part-time, then LFP* would be halfway between 54 and 27, i.e. LFP* = 0.5x54 + 0.5x27 = 40. Thus LFP* would only be 40, not 54

More exactly, 40% of women are part-time, so LFP* is 0.6x54 + 0.4x27 = 43, still much lower than men

20
Q

Why has there been a decline in older male LFP?

A
  • better pensions
  • better sick pay
  • increased taxation
  • more regulation - requires higher productivity
21
Q

Why the increase in women LFP?

A
  • rising female pay
  • better education
  • divorce
  • smaller families
  • patriarchy declining
  • exogenous factors: improved child health
22
Q

Reasons for women’s liberation

A

Medical advances

  • do not die
  • need to spend less time with sick children
Engineering advances (exogenous factors)
- less time spent on house work
23
Q

Why are employment/population ratios more reliable than LFP ratios?

A

Do not include unemployment which is harder to measure

24
Q

Which female ethnic groups have the lowest/highest LFP and why?

A

Bangladeshi & Pakistani women = lowest
- language problems and religion

Afro-Caribbean women have high LFP
- high proportion of single-parent families

25
Q

What is the ULC equation?

A

WxL / Q

or

W / (Q/L)

26
Q

What is the labour productivity equation?

A

Q/L

27
Q

If wages are high…

A

…labour productivity must be high

28
Q

Draw the graph for marginal productivity theory and explain

A

Look at notes

29
Q

Why is the MRP curve the demand for labour curve?

A

Look at notes

30
Q

What are the limitations of MRP theory?

A
  • What happens when firms do not profit maximise (slack management)?
  • Some firms do not sell a product (e.g. government, police)
  • What happens when labour is unique? (e.g. Wayne Rooney)
  • When firms have monopsony power, W
31
Q

What does monopsony mean?

A

Single buyer

32
Q

Draw the monopsony graph and explain

A

Look at notes

33
Q

What are the monopsony arguments?

A
  • Average worker stays with his/her employer about 10 years - not a spot market - so both have power
  • Where both sides have power = situation of bilateral monopoly - bargaining determines the wage within limits
  • Wage fixing via the min. wage seems to have effects only on particular unskilled groups - is this evidence of monopoly?
  • Monopsony power in single buyer sense must be rare - there are about 2m firms in the UK - these have to take W as given
34
Q

Draw the diagram illustrating employment v GDP and explain

A

Look at notes

35
Q

What is the elasticity of L with respect to W/P in the short-run and the long-run?

A

Short-run = 0.3

Long-run = -0.9

Labour demand elasticity is negative and greater in the LR when firms have time to make other adjustments to wage changes
LR labour demand is more elastic than SR

36
Q

What is the elasticity equation?

A

% change Q / % change P

or

% change L / % change W

37
Q

Draw the labour productivity theory graph and explain

A

Look at notes

38
Q

What is the labour utilisation equation?

A

hours worked / population

39
Q

What are the reasons for productivity change within a company and country?

A

Within a company: good management is vital

Within a country:

  • industrial relations changes of Thatcherism
  • computers
  • ‘batting average’ - low skill workers and industries dropped
  • minimum wage increases
  • capital per worker increases
  • foreign trade - more skilled work gets done in the UK, less skilled moved offshore
  • better institutions: more stable inflation, lower taxes, less corruption
40
Q

If labour productivity is too high, what does this mean for the poor?

A

Poor don’t get jobs (when K used instead of L because of high W)

Economics of Labour Markets (5 decks)

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