Term 1 - Intro, Chapter 1 & Chapter 2 Flashcards
Work out the UK’s average earnings
GDP = £1500bn
Wage bill = 70% of GDP
Workforce = 30m
1500bn x 0.7/30m = £35,000
What is the equation for labour productivity?
GDP/L
Explain how there could be a reduction in absolute poverty but not relative poverty
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
Draw the worker and firm surplus diagram and explain
Look at notes
Draw the free trade vs. minimum wage diagram and explain
Look at notes
Define pareto improvement
Where someone gains without another losing
Define a potential pareto improvement
Where gainers’ gains > losers’ losses
The pareto criterion would be satisfied as long as…
…prices are fixed enough to make D = S
Draw the diagram illustrating the effects of welfare benefits on unskilled v skilled workers and explain
Look at notes
Draw an individual’s labour supply curve and explain
Look at notes
Draw an individual’s labour supply graph with indifference curves and explain how people have a choice over working hours
Look at notes
Draw a diagram illustrating how a tax increase effects the indifference curves on an individual’s labour supply graph
Look at notes
Draw a diagram illustrating how welfare benefits cause low wage workers to drop out of the labour market
Look at notes
What is the replacement rate equation?
B / (1-t)w
OR
Income out of work/income in work
Draw a diagram illustrating the effects of a WTC on unskilled workers and explain
Look at notes
Draw a diagram showing the effects of a work subsidy and explain
Look at notes
Define reservation wage
Amount someone is prepared to work for
What is the LFP equation?
employed + unemployed / population
Explain why women’s true (FTE) LFP is less than 54%
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
Why has there been a decline in older male LFP?
- better pensions
- better sick pay
- increased taxation
- more regulation - requires higher productivity
Why the increase in women LFP?
- rising female pay
- better education
- divorce
- smaller families
- patriarchy declining
- exogenous factors: improved child health
Reasons for women’s liberation
Medical advances
- do not die
- need to spend less time with sick children
Engineering advances (exogenous factors) - less time spent on house work
Why are employment/population ratios more reliable than LFP ratios?
Do not include unemployment which is harder to measure
Which female ethnic groups have the lowest/highest LFP and why?
Bangladeshi & Pakistani women = lowest
- language problems and religion
Afro-Caribbean women have high LFP
- high proportion of single-parent families
What is the ULC equation?
WxL / Q
or
W / (Q/L)
What is the labour productivity equation?
Q/L
If wages are high…
…labour productivity must be high
Draw the graph for marginal productivity theory and explain
Look at notes
Why is the MRP curve the demand for labour curve?
Look at notes
What are the limitations of MRP theory?
- 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
What does monopsony mean?
Single buyer
Draw the monopsony graph and explain
Look at notes
What are the monopsony arguments?
- 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
Draw the diagram illustrating employment v GDP and explain
Look at notes
What is the elasticity of L with respect to W/P in the short-run and the long-run?
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
What is the elasticity equation?
% change Q / % change P
or
% change L / % change W
Draw the labour productivity theory graph and explain
Look at notes
What is the labour utilisation equation?
hours worked / population
What are the reasons for productivity change within a company and country?
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
If labour productivity is too high, what does this mean for the poor?
Poor don’t get jobs (when K used instead of L because of high W)
