The Labour Market

Question 1

Trade union

Answer 1

An organised association of workers in a trade formed to protect and further their rights and interests. One worker alone against a large employer is weak, however many workers joined together become powerful and their voice is heard. Allows them collective bargaining power over employers. Helps reduce exploitation

Question 2

Monopsony

Answer 2

Employer has buying power over their potential employees. Gives them wage- setting power. Potential cause of labour market failure. Wage pay will not necessarily reflect the true marginal revenue product of people employed. Can lead to exploitation

Question 3

Labour Market Failure (examples)

Answer 3

Labour immobility- barriers to change location or move between jobs
Disincentives to find/take work- poverty and unemployment trap
Discrimination by employers- badly affects wages and employment
Monopsony power of employers- can drive down wages

Question 4

Economically active and inactive

Answer 4

Economically active- currently in or seeking work 16-64
Economically inactive- not in or not seeking work, all ages
Participation ratios/activity rates- %of population of working age who are economically active, possible to calculate for sub sections of society such as females only

Question 5

Causes for shifts in labour demand

Answer 5

Labour productivity improvements through training, better capital, better management. Higher demand for the final product rises so firms hire extra workers. Price of a substitute input rises.
A change in technology- if technical progress makes labour more productive relative to other factors, firms are likely to substitute labour to other factors so the curve shifts right. However it can also have the opposite effect by causing firms to substitute capital for labour for a shift left

Question 6

Nominal and Real Wages

Answer 6

Nominal wages are unaffected by inflation whereas real wages express the value of a wage adjusted for the effects of inflation.
Real wage = nominal wage x 100 ÷ price index

Question 7

Key Causes for Pay Differentials

Answer 7

Compensating wage differentials- working in poor conditions
Different skill levels
Differences in labour productivity and revenue creation
Trade unions
Employer discrimination

Question 8

Monetary Factors

Answer 8

Wages, salary, commission or bonus payments

Question 9

Non-Monetary Factors

Answer 9

Convenience and flexibility, status, leisure time, job security, perks and fringe benefits etc.

Question 10

Demand for Labour

Answer 10

A firm demands more only if profits can be increased by employing more workers, therefore a firms demand for labour is a derived demand, derived from the demand for goods

Question 11

Marginal physical product of labour (MPPL)

Answer 11

The addition to a firms total physical output brought about by employing one or more worker. Measures the amount by which a firm’s total output rises in the short run.

Question 12

Marginal Revenue Product of Labour (MRPL)

Answer 12

The money value of the addition to a firm’s total output brought by employing one more worker, the money value of the MPPL.
MPPL x price = MRPL in the labour market

Question 13

Elasticity of demand for labour

Answer 13

% change in demand ÷ % change in wage rate

Question 14

Causes of shifts to the supply curve

Answer 14

Changes in non-monetary factors, changes in income, changes in population, changes in expectations

Question 15

Elasticity of supply of labour

Answer 15

% change in supply ÷ % change in wage rate

Question 16

Negatives of a trade union

Answer 16

Through the increase in wage provided, there is an excess of supply in the labour market which equates to a fall in employment levels, therefore while trade unions can be very helpful in reducing exploitation, if used without consideration it may simply reduce employment levels which is a larger negative. Therefore should only be used when necessary like a monopsony market where it can potentially rise employment levels

Question 17

National Minimum Wage

Answer 17

A minimum wage rate that must by law be paid to employees, though in many labour markets the wage rate paid by employers is above the NMW. If markets are highly competitive and the NMW is set above the market-clearing wage it may lead to a fall in employment but the opposite it true for a monopsony market

Question 18

Pros and Cons of NMW

Answer 18

It reduces exploitation of low-paid workers
Reduces poverty, reduces income inequality
Only affects markets that has a wage rate below the NMW
Possible change in employment levels

Question 19

Wage discrimination

Answer 19

Paying different workers different wage rates for doing the same job, employers do this by paying workers the minimum they are prepared to work

Question 20

Reasons for the gender pay gap

Answer 20

Women work in predominantly low-paid industries and occupations. Women are under-represented in higher paid posts so women are often paid less than men for working the same job. In addition women are disproportionately highly represented in industries with a small firm which correlates to lower pay. Women may have to take time off work to look after children which can cause their male co-workers to gain more skills from working longer and possibly higher wages.