The Labour Market Flashcards

1
Q

what is the labour market composed of ?

A

sellers of labour (Households)

buyers of labour (firms)

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2
Q

who supplys the labour ?

A

workers

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3
Q

who demands the labour ?

A

firms

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4
Q

what type of demand is the demand for labour ?

A

derived demand

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5
Q

what is derived demand ?

A

demand that is dependent on the demand for goods and services

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6
Q

what does demand for labour depend upon ?

A

The Marginal Physical Product of Labour (MPPL)
The Marginal Revenue Product of Labour (MRPL)

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7
Q

what is marginal physical product of labour (MPPL) ?

A

is the extra output produced when an additional unit of labour is employed

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8
Q

what is marginal revenue product of labour (MRPL) ?

A

is the extra revenue earned when an additional unit of labour is employed

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9
Q
A
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10
Q

what are the factors that shift the demand for labour curve ?

A

change in the price of the final product the labour is producing (increases/decreases MRPL)

price

substatuitablity of labour for capital

productivity of labour

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11
Q

what is the elasticity of demand or labour ?

A

how responsive a firms demand for labour is to a change in price of labour

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12
Q

what are the factors that influence that PED of labour ?

A

proportion of labour costs to total costs

ease and cost of factor substitution

PED for final product

time period

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13
Q

monetary factors that influence the supply of labour ?

A

wages
salary
commission
bonus
piece rate pay
performance related pay
share options
fringe benefits

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14
Q

non-monetary factors that influence the supply of labour ?

A

length of training
job security
job satisfaction
level of challenge

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15
Q

what factors shift the supply curve for labour ?

A

training period
wages in other occupations
income tax levels
working conditions

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16
Q

in a perfectly competitive labour market, how are wage rates determined ?

A

DL = SL

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17
Q

what is the assumption of workers in perfect competition ?

A

workers possess identical skills
receive same wage rate

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18
Q

if there is excess demand of labour, what does that mean for labour rates ?

A

shortage of workers, causing wages to increase

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19
Q

of there is an excess supply of labour ?

A

causes wages to decrease

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20
Q

are perfectly competitive firms price takers of makers ?

A

price takers

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21
Q

if a perfectly competitive firm is a price taker, what does this mean in terms of labour ?

A

they have to accept the wage rate that workers are being paid in the industry (have to accept the industry wage rate)

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22
Q

what are the 3 main causes of imperfections in the labour market ?

A

monopsony power

trade unions

imperfect information

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23
Q

what is a monopsony ?

A

a single employer of labour in a market, giving the employer considerable labour market power to set wages and employment

24
Q

the higher the percentage of workers from a firm that belong to a trade union, the greater the … ?

A

collective bargaining power

25
Q

what are the other factors that influence trade union power ?

A

employee participation

state of the economy

unemployment level

productivity of labour

wage levels as a proportion of total costs

ability to swap labour for capital

size of trade union

firms profits

26
Q

why do governments intervene in the labour market by setting a minimum wage ?

A

to improve equity

avoid exploitation of workers

27
Q

what are the advantages of minimum wages ?

A

guarantees a minimum wage for the lowest paid workers

higher income levels help to increase consumption in the economy

may incentivise workers to be more efficient

28
Q

what are the disadvantages of a national minimum wage ?

A

raises costs of production for firms which may result in firms raising the price of their goods/services

increase unemployment potentially, as they may lay off workers to lower production costs

29
Q

where does wage discrimination occur ?

A

when there is imperfect information leading to a difference in wages between workers with comparable skills in the same job

30
Q

what are the 2 most common wage discrimination scenarios ?

A

gender pay gap discrimination

ethnicity discrimination

31
Q

if there is less competition in the labour market what does that mean in terms of power over wage setting ?

A

more power over wage setting

32
Q

when do monopsonys occur ?

A

when there is a single buyer of labour in a market & wage setting is the same for all workers

33
Q

what does ACL (average cost of labour) tell us ?

A

the wage emplyees are being paid

34
Q

what does MCL (marginal cost of labour) tell us ?

A

the change in wage of the extra/new employee hired

35
Q

at what point do monopsonys hire at ?, and why ?

A

profit maximising point, minimise their costs

36
Q

in a perfectly competitive market what do trade unions do ?

A

set a trade union wage rate above the market rate and the market equillibrium

37
Q

what are trade unions aiming to do in monopsony markets ?

A

improve wages and working conditions

38
Q

where is the wage rate in monopsony markets before trade nion intervention ?

A

at the PM point below the Market Equilibrium

39
Q

what does trade union intervention attempt to accomplish in monopsony markets ?

A

to set a wage rate at the market equilibrium, to raise wages and employment

40
Q

why do governments often intervene in markets to set a minimum wage ?

A

to improve equity and avoid exploitation of workers

41
Q

where is the minimum wage usually set in perfectly competitive markets ?

A

above the market equilibrium

42
Q

what are the advantages of national minimum wages ?

A

+ guarantees a minimum income for the lowest paid workers

+ increased income levels for workers may increase consumption

+ may incentivise workers to be more productive

43
Q

what are the disadvantages of national minimum wages ?

A
  • raises costs of production, may lead to firms setting higher prices for their goods/services
  • may force businesses to lay off workers to cut costs
44
Q

why does minimum wages not always lead to unemployment ?

A

higher incomes for workers will lead to greater consumption and demand for goods/services

45
Q

where does wage discrimination occur ?

A

when there is a difference between workers with comparable skills in the same job

46
Q

what are the 3 factors of wage discrimination ?

A
  • discriminatory attitudes towards particular groups
    (Gender & Ethnic Minorities)
  • information asymmetry
    (justifying lower wages due to a lack of financial transparency)
  • regulation
    (lack of legislation or regulation may result in firms exploiting their power with no fear of consequence)
47
Q

what is the Price Mechanism ?

A

the interaction of demand and supply in a market economy that allocates resources amongst competing needs and wants

48
Q

what does Adam Smith refer to the Price Mechanism as ?

A

“The invisible Hand “

49
Q

what are the 3 functions of the Price Mechanism ?

A

Rationing

Incentivising

Signalling

50
Q

what happens if a function of the market mechanism breaks down ?

A

Market Failure

51
Q

what is the Rationing function of the market mechanism ?

A

. when resources become scarce, the price will rise
only those who can afford them will receive them

This will disincetivise consumers to spend

52
Q

what is the Incentive function of the market mechanism ?

A

. the incentive function encourages producer to increase or decrease output to increase profits.

Falling prices may incentivise firms reallocate resources to a new market

53
Q

what is the Signalling function of the market mechanism ?

A

. a change in price provides a signal to consumers and producers about where resources are wanted.

increased prices -> signal producers to produce more of that product
decreased prices -> signal producers to produce less of that product

54
Q

if there was an increase in the demand for honey (D1 -> D2), what would be the functions of the Price Mechanism ?

A

Rationing: a rise in price will lead to only consumer who can afford that product purchasing it

Incentivise: a higher price incentivises firms in that market to allocate more resources to that product to produce more

Signal: a rise in price and demand for that product in that market will signal other firms to enter the market

55
Q

what are the advantages of the Price Mechanism ?

A

+ reduces are allocated more efficiently as the market adapts to changes quickly

+ consumers have more freedom of goods and services produced (wants and needs are better met)

56
Q

what are the disadvantages of the Price Mechanism ?

A
  • does not account for monopoly power, can lead to exploitation of consumers by firms
  • can lead to an under-provision of public goods (lack of profit to be made of them, because they are non-excludable) this could cause market failure