The labour market Flashcards
Derived demand
when demand for labour is driven by demand for goods
marginal productivity theory
the demand for any factor of production depeneds on MRP
MRPL
Marginal revenue product of labour the extra revenue gained for employing one more worker
MRPL equation
MPPL(marginal physical product of labour) times by MR (Marginal revenue)
Marginal cost of labour
the cost of hiring one additional worker
MPPL and MRPL curve
Slope downwards because of law of dimishing returns which means as each worker is employed output falls
Cause of shifts in the demand curve of labour(MRPL Curve)
Changes in price- if price falls it will decrease firms demand for labour shifting MRPL to the left
changes in labour productivity-if theres new training and technology it will increase productivity shifting MRPL to the right
Changes to the cost of labour-if costs increase it will decrease demand and shift MRPL to the right
Elasticity of demand for labour
The change in demand when wage level changes
elasticity of demand for labour equation
changes in quantity demanded by change in wage rate
Factors influencing elasticity of demand for labour
the ability to replace labour it will be more elastic if they can replace labour
if labour can be subsituted it can be elastic
the proportion of wage in firms costs if theres a large proportion then it will be elastic
the PED of the product the more elastic it is then more elastic labour is
Individual labour supply
The total number of hours a person is willing to work at a given wage rate
Occupational labour supply
The number of workers willing to work in that occupation at a given wage rate
Occupational labour supply graph
As wage rate increases for an occupation quantity of labour increases
the supply curve slopes upwards
Subsitution effect
as wages rise the opportunity cost of leisure time increases which means workers have incentive to subsitute leisure time with work
Individual supply curve
if theres a higher wage rate workers work fewer hours
quantity of labour decreases as wages rise
Income effect
people choose to work less even through wage rate increases
Monetary benefits
the weflare a worker gains from the wage they recieve
Non monetary
the welfare a worker gains from non wage benefits example, employee discounts
Wage differentials
the differences in wages between groups of workers or between workers in the same occupation
Nominal wages
the amount people are paid
real wage
This takes into account inflation and purchasing power of wages
Reasons for wage differentials
workers that are skilled are paid more
wages vary in different regions or industries
trade unions
High human capital
having high skills or exprience to offer an employer
equilibruim wage rate and employment rate in a perfectly competitive market-whole market
individuals are price takers as they have no power to influence wages so they accept rulling wage
the curve is elastic
equilibruim wage rate and employment rate in a perfectly competitive market-individual firms
maxmise profits at MRPL=MCL
Monopsony
when theres only one buyer
Monopsony labour market
when theres a single employer
wage and employment levels in a monopsony
Marginal cost of labour is above average cost of labour because if a worker is hired they have to pay a higher wage to attract them and increase existing wages
they will have higher workers to maxmise profits at MRPL=MCL
trade union
an organisation formed to represent the interests of a group of workers
Purpose of trade union
to bargain with employers for better pay, better working conditions and job security
Collective bargaining
When a trade union negotiates with an employer
productivity bargains
where unions agree to specific changes that will increase wages for higher productivity
effects of trade unions in perfectly competitive markets
forces wages higher but quantity employed falls
it causes an oversupply of workers causing unemployment and labour market failure
Bilateral monopoly
when theres a single buyer and single seller
effects on wages and quantity of labour in a monopsonist
it increases wages and changes supply from ACL to MCL and increase employment
Wage discrimination
when employers with monopsony power put different wages rates based on workers willingness to supply labour
Labour market discrimination
workers being discriminated against based on differences in gender and race
Wage discrimination advantages and disadvantages-for workers
advantages-wage costs will decrease bringing more demand for jobs
disadvantage-force wages down, exploitation of vunerable workers
Wage discrimination advantages and disadvantages-employers
Advantages-reduce costs for wages which increase profits
Disadvantages-industrial unrest
Economy
advantages-increased employment level caused by increased demand
disadvantage-increased ineqaulity
NMW
national minimum wage which is the legal minimum hourly rate which prevents the exploitation of workers
Effects of national minimum wage
more equitable distribution of income
encourages people to get a job
increased supply due to increased participation
help to tackle poverty
lead to contraction in demand
advantages of a national minimum wage
reduces level of poverty
boost of morale to workers
incentive to be employed
increase in tax revenue
disadvantage of a national minimum wage
increase wage costs for firms causing unemployment
decrease competitiveness
increase in prices causing inflation
