The Labour Market

Question 1

the demand for labour

Answer 1

derived demand aka marginal revenue productivity

Question 2

marginal revenue productivity

Answer 2

the addition to a firms total revenue from employing an additional unit of FoP

Question 3

Determinants of Labour demand

Answer 3

1) wage rates
2) Labour productivity
3) price of substitute factors

Question 4

wage rates

Answer 4

• the price of labor

- increase in wage rates, contraction along demand curve for labour

Question 5

labour productivity

Answer 5

as output per worker / hour increases = more valuable to employer - demand rises

Question 6

what does a change in wage rate cause

Answer 6

• movement along demand curve

Question 7

elasticity of demand for labor

Answer 7

measures the responsivness of the quantity demanded of labor following a change in the wage

Question 8

LED equation:

Answer 8

percentage change in quantity of labor demanded / percentage change in wage rate

Question 9

Determinants of LED

Answer 9

1) ease of substition of other FoP= more = elastic
2) time period- longer more easy to sub other fop = elastic
3) elasticity of demand for good/ service - if inelastic, labour inelastic

Question 10

Determinants of supply of labour

Answer 10

1) wage rates- higher wages, extension in supply curve
2) size of working population
3) non- monetary factors eg job security promotion

Question 11

elasticity of supply of labour

Answer 11

measures the responsiveness of quantity supplied of labour following a change in wage rate

Question 12

LES equation

Answer 12

percentage change in quantity supplied of labour / percentage change in wage rate

Question 13

Determinants of supply of labour

Answer 13

1) time- longer - workers more able to complete training = elastic
2) Length of training period - longer = inelastic

Question 14

Wage differential:

Answer 14

differences in wages arising between individuals, occupations

Question 15

Monopsony

Answer 15

a market with a single dominant buyer

Question 16

nmw

Answer 16

statutory policy used to increase earnings of low paid

leads to an excess supply of labour = unemployment

Question 17

monopsony labour market

Answer 17

marginal costs of employing workers exceeds the average cost

- to attract an additional worker firm has to pay more to this worker as well as other employees

Question 18

Trade union

Answer 18

a group of workers that bargain collectively with employers to increase its members wages

Question 19

Effect of trade unions on perfectly competitive market

Answer 19

increase wages

reduce employment levels - excess supply of workers

Question 20

Effect of trade unions on imperfectly competitive market

Answer 20

• increase wages

- increase employment

Question 21

Conditions necessary for wage discrimination

Answer 21

• firms must have some wage setting ability, therefore labour market must be imperfect
• distinct seperate labour market
• lack of legal protection/ imperfect information about the discrimination on the part of the gov

Question 22

Economic Disadvantages of wage discrimination

Answer 22

1) may lead to some groups being underpaid , worsening relative poverty
2) inceeased gov spending on welfare
3) increased litigation as workers attempt to take legal action against employers

Question 23

Marginal Physical Product

Answer 23

The addition to output from employing an additional unit of fop usually labour

Question 24

Perfectly competitive labour market

Answer 24

• each unit of labour is homogenous, unable to influence the wage rate
• workers must therefore accept going wage rate
• individual firms are wage takers : if they pay a wage below equilibrium , workers will work for rival firms
• profit maximise : MRP = MC

Question 25

Monopsony Labour Market

Answer 25

employer can use market power to reduce wage rate and level of employment below perfectly competitive labour market

marginal cost of employing workers exceeds average cost , to attract an additional worker firm has to pay more to this worker as well as other employees

Question 26

Evaluation of trade unions

Answer 26

too simplistic, trade unions may not reduce employment
could lead to pay rises for workers in return for agreement to adopt more productive working methods, such as using computers or agreeing to retrain
- Increase worker’s MRP and demand for labour, no excess demand arising

Question 27

Evaluation national minimum wage

Answer 27

by increasing the incomes of the low paid who tend to have to a high marginal propensity to consume, extra demand is created in the product market which increases worker’s MRP, hence demand for labour actually increases

Question 28

Negative Discrimination

Answer 28

where employers treat a specific group of workers less favourably than others in terms of pay and employment levels

Question 29

Positive Discrimination

Answer 29

where employers treat a specific group of workers more favourably than others in terms of pay and employment levels

Question 30

Low pay can result from labour market failures such as:

Answer 30

• Lack of skills leading to a very elastic demand for labour, therefore a ‘higher wage would reduce demand, workers have to accept this wage or remain unemployed
• inward migration: workers from low pay countries prepared to accept extremely low wages, drives down wages for indigenous employees