The Labour Market

Question 1

Who demands labour

Answer 1

Employers

Question 2

What are the factors affecting demand for labor

Answer 2

1. Demand for the final product
2. Availability of machinery
3. Productivity of the workforce
4. Changes in complementary costs

Question 3

Who supplies labor

Answer 3

The working population

Question 4

What are the factors affecting the supply of labor of all occupations

Answer 4

1) Changes in the working population:

    - Changes in the total number of people who can work (change in population size, retirement age, school leaving age)

    - More women entering the labor force (Change in social attitudes towards women, improved technology at home)

    - Migration
    
    - Geographical and occupational mobility

Question 5

What are the factors affecting specific occupations

Answer 5

1) Changes in net advantage of an occupation (promotion prospects, job satisfaction, fringe benefits)

2) Qualifications and training

Question 6

What is the national minimum wage

Answer 6

The national minimum wage is the lowest wage that can legally be offered to workers

Question 7

What are some advantages of the national minimum wage

Answer 7

1. Improved standard of living for workers - When the national minimum wage increases, workers that were previously paid minimum wage essentially receive a pay rise. As a result, they now have more disposable income, improving their standard of living as they can afford to buy more things
2. Improved motivation of low paid workers - An increase in the national minimum wage means that low paid workers are now paid more. Consequently, these workers are more motivated to go to work, increasing their productivity and as a result helping their firm and the economy grow
3. Unemployed people are encouraged to enter paid employment
4. Income inequality is reduced

Question 8

What are some disadvantages of the national minimum wage

Answer 8

1. Unemployment - By increasing the national minimum wage above the equilibrium wage rate, the quantity supplied of labor will exceed the quantity demanded of labor. This will lead to unemployment, as the demand for labor at that wage rate isn’t enough to satisfy the increased supply of labor at that wage rate
2. Higher prices - When the national minimum wage is increased, firms have to pay their workers more, resulting in their overall costs of production increasing. As a result, firms try to pass on this higher costs to consumers leading to higher prices.
3. Firms close down
4. Inflation

Question 9

To what extent do the advantages and disadvantages of the NMW depend on

Answer 9

• The number of workers paid below the minimum wage
• The level of the minimum wage
• The extent to which increases in productivity offset the higher wage costs
• The ability of firms to cut costs elsewhere