The labour market

Question 1

What is derived demand?

Answer 1

demand for a good or service not for its own sake but for what it produced, eg labour

Question 2

How does the law of diminishing marginal productivity apply to labour?

Answer 2

As labour increases, capital relatively more scarce so labour won’t be as efficient (or can only be by spending lots more money on capital).

Question 3

Name three factors that affect the position of the labour demand curve.

Answer 3

• demand for product it produces
• availability and quality of technology used
• availability of capital

Question 4

Name four factors that affect the shape of the labour demand curve, ie its elasticity.

Answer 4

• availability of substitutes, eg capital
• relative cost of labour to rest of budget
• time period of measurement
• price elasticity of demand for the product produced

Question 5

What’s the opportunity cost to the worker of a wage?

Answer 5

leisure time

Question 6

Name two effects on labour supply of higher wages

Answer 6

• substitution effect: higher opportunity cost of leisure, so increase to working hours
• income effect: higher income so can affort more leisure so reduction in working hours

Question 7

What shape is an individual’s labour supply curve likely to be?

Answer 7

backwards C as substitution effect stronger at lower wages then income effect stronger at higher wages

Question 8

What are non-pecuniary benefits?

Answer 8

non-financial benefits to workers

Question 9

Give four examples of non-pecuniary benefits.

Answer 9

1. subsidised canteen
2. training
3. job satisfaction
4. job security

Question 10

What shape is an industry’s labour supply curve likely to be and why?

Answer 10

upward sloping, as higher wages will attract workers from other industries or those not currently working

Question 11

Name two factors that could affect the position of the labour supply curve.

Answer 11

• immigration / emigration
• unemployment benefits

Question 12

Define the participation rate.

Answer 12

proportion of population of working age in employment or seeking work

Question 13

Which labour supply curve will be more elastic, doctors or shop-workers?

Answer 13

shop-workers as less skilled (so more people could do the job without need for long training or certain level of intelligence)

Question 14

Give three reasons why a labour market may not be competitive.

Answer 14

• entry controlled by governing body, eg actuaries
• trade unions may control who can be employed
• monopsony employer as single buyer of labour

Question 15

Name two types of labour mobility.

Answer 15

• geographic
• occupational

Question 16

Name four factors that cause geographic immobility of labour.

Answer 16

• cost of housing / moving house or transport
• social, eg want to stay near family or not disrupt children’s education
• information, eg difficult to find out about jobs in other areas
• immigration rules, eg Brexit means no free labour movement with EU now

Question 17

Define minimum wage.

Answer 17

government set wage below which firms are not allowed to pay

Question 18

In the UK, what does minimum wage depend on?

Answer 18

age and whether apprentice:
* age under 18 or apprentice get least
* age 18-20 get more
* age 21+ get most in form of national living wage

Question 19

What are the three objectives of a minimum wage policy?

Answer 19

1. prevent exploitation
2. improve incentives to work
3. alleviate poverty

Question 20

Why might introduction of a minimum wage (above curent equilibrium wage) increase unemployment?

Answer 20

• demand for labour reduced as wage higher
• supply of labour increased as more willing to work for that wage

Question 21

If labour is geographically immobile, how can government increase employment?

Answer 21

“levelling up” eg by providing incentives for firms to move to areas of higher unemployment, eg Northern Powerhouse to revitalise cities in N England

Question 22

What effects has Brexit had on UK labour market?

Answer 22

• shortage of workers eg HGV drivers, fruit pickers, hospitality
• increased public sector jobs in civil service

Question 23

What effects has Covid-19 pandemic had on UK labour markets?

Answer 23

• short-term unemployment in eg hospitality sector (but cushioned by furlough scheme)
• more workers retiring early or withdrawing from workforce (ie to avoid the illness or in case of healthcare professional because of incresaed workload in the pandemic)
• more mobility from more working at home - but potentially reduced demand for labour eg in cafes near city-centre offices
• lower demand for shop workers given it accelerated demand for online shopping instead (bit more demand for warehouse workers)