The Labour Market Flashcards
What kind of demand is the demand for labour?
It is derived demand
It is derived from the demand for goods
What is the marginal physical product of labour (MPPL)?
The addition to a firm’s total output brought about by employing one more worker
Change in output/Change in Q of labour
What is marginal revenue product of labour (MRPL)?
The money value of the addition to a firm’s total output brought about by employing one more worker
MRPL=MPPL x P or MPPL x MR (MR = P in a positively competitive market)
This represents the demand for labour in a perfectly competitive market
Factors affecting demand for labour?
- Price of product (+P=+D)
- Demand for final product (derived demand)
- Ability to substitute capital for labour
- Productivity (+productivity = lower AC = +D)
What is elasticity demand for labour?
Measures how responsive a firms demand for labour is to a change in the price of labour (wage rate)
Factors influencing PED of labour?
- Proportion of labour to costs (+proportion=+elastic vice versa)
- Ease and cost of factory substitution
- PED of product (inelastic=price passed onto consumers)
- Time period (SR more inelastic, LR can find alternative so more elastic)
Monetary factors which influence the supply of labour?
- Wages/Salary
- Commissions
- Bonuses
- Peice rate pay
- Performance rated pay
- Share options
- Fridge benefits (e.g childcare, gym membership, company car, free lunches)
Non-monetary factors that influence the supply of labour?
- Length of training
- Job security
- Job satisfaction
- Career prospects ??
- Challenge
- Status
- Work life balance
What is a monopsony?
When there is a single employer of a labour market, giving the employer considerable labour market power to set wages and employment
(E.g the NHS)
What is a trade union?
An organisation that represents people who work in a particular industry to protect rights through collective bargaining
What are causes of imperfectly competitive markets?
- Monopsony
- Trade unions
- Asymmetric information
How do monopsony’s influence relative wage rates and employement?
- Can set wages below the market level, workers have limited opportunities due to the lack of other employers in the market, so the employer reduces its costs increasing their profits
- workers = +wages for everyone. MC>wage rate per worker so employer hires less workers than in a competitive market where the wage rate is constant —> lower level of employment in the monopsonistic market
Factors influencing the collective bargaining power of trade unions
- % of workers in a firm/economy/industry in the trade union
- Unemployment (+UE = workers easier to replace)
- Wages proportion of TC (smaller proportion = higher power)
- Ability to swap labour for capital
- Profits
- State of economy (recession =less power)
- Productivity ( more productive = more valuable)
Advantages of a national minimum wage?
- Guarantees minimum income for lowest paid workers
- income = + consumption
- Incentive for productivity
- Lifts people out of working poverty which then cuts means-tested welfare spending
What are disadvantages of a national minimum wage?
- cost of production can be passed onto consumers (cost push inflation)
- may increase unemployment instead to cut costs (classic unemployment)
- Outsourcing (internationally) & automation (replace labourers with capital)
What is the supply of labour to a particular market influenced by?
Monetary and non-monetary considerations
What causes shifts in the market supply curve for labour?
- Changes in population (migration)
What is elasticity supply of labour?
The proportionate change in labour following a change in the wage rate
change in SL/change in £
What is minimum wage?
A legal pay floor per hour that all employers must pay to eligible workers.
To be effective it must be set above the normal free market wage.
