The Labour Market Flashcards
what is demand for labour derived from
demand for services
what is MRP and its formula
MRP - the revenue generated from adding one extra worker
MRP = MPP x MRc
3 criticisms of MRP as a measure of value
- productivity is very hard to measure
- teamwork could increase productivitiy
- self employed people will have distorted MRP
factors that shifts MRP curve
- price
- products
- productivity
- capital
( any factor that affects the equation MRP = MPP x MR )
3 factors that affect the elasticity of MRP curve
Sect
S,E,C,T
- substitutability of labour
- Elasticity of final product
- Cost of labour as a % of total costs
- Time period
what are the determinants of individual labour supply
- income effect
- substitution effect
what is the income effect
As wages rise incentive to world increases however as people reach there target income the incentive to work will decrease.
this means the income effect can be positive and negative depending on size of income
substitution effect
As wages rise the opportunity cost of not working increases therefore people are incentivized to work (this is always positive
how is the individual labour supply affected by the substitution and income effects
as hours worked becomes greater income and income effect slowly become negative as people reach there target income and will substitute work for leisure.
substitution effect will increase with income however is dwarfed t by income effect at high income creating a backward bending supply curve
how will individual supply of labour vary form person to person
depending on the strenth of substitution effects and income effects for that individual will determine the shape of their supply
why is MC 2x steeper than AC in a monopsony
because if a firm wants to increase wage rate it would have of do so for every worker in the firm therefore marginal cost of labour increase steeply.
3 factors that cause shifts in labour supply
- barriers to entry
- wages
- size of working population
3 factors that effect the elasticity of labour supply
- regulation
- wages in substitute occupations
-barriers to entry - time (supply will be more elastic in the long run)
4 characteristics of perfectly competitive labour market
- no barriers to entry
- forms are wage takers (because workers are homogonous you cannot attract better workers by raising the wage rate)
- large number of potential workers
- perfect information
Give a reason that proves that perfectly competitive labour markets do not exist
there are wage differntials
Give 3 reasons for labour market imperfections
- labour is not perfectly mobile (occupational immobility and geographical immobility and lack of perfect knowledge)
- wage differentials (monopsony/trade unions/discrimination)
-lack of perfect information
What is a monopsony
Labour markets where there is one employer
characteristics of monopsony labour markets
- wage maker
- maximize revenue (MC=MRP)
- monopsonist charge where W<MRP
how do you measure monopsony power
difference in wage with MRP
what is trade union power
the difference between wage rate and MRP
3 factors affecting union power
- size of union
- globalization
- legislation reducing there power
2 examples of legislation against TU in the uk
- Employment act 1980 - secret postal ballots making it harder to organize strikes
- Trade union act 2016 - strike ballots must have minimum turnout of 50 % and overall majority vote
3 points of TU in monopsony markets
- efficiency increases
- imperfect information could cause issues
- potential conflicts putting workers at risk
Factors that determine wage differentials
- MRP
- Inequality
- Discrimination
- Trade union Power/monopsonist power
what has cause the North South wage differential
- Restructuring of the uk economy away from manufacturing and towards services have moved a lot of jobs to London
- This caused negative accelerator and multiplier effects in the north as unemployment eroded purchasing power causing firms to relocate and consumer confidence is low
- Manufacturing jobs had low MRP therefore workers do not have the financial resources resources to move to London
3 causes of Wage differentials between ethnic groups
- lack of language proficiancy
- discrimination
- poor access to education therfore lower MRP and job prospects in there area
3 positives of wage differntials
- Encourage enterprise and productivity
- promotes efficient resource allocation
- Trickle Down effect
3 negatives of wage differntials
- income inequality
- demotivating
- economics inefficiency
3 evaluation point on wage differentials that could make the effects of them worse or better
- Inequality - how much is too much
- Risks of government intervention and opportunity costs
- SR vs LR
3 reasons for a minimum wage
- Poverty alleviation (poor have large marginal propensity)
- increase productivity of workers and incentivize firms to boost human capital
- equitable distribution of income
3 reasons against minimum wages
- Youth unemployment
- large costs to businesses (reduce consumer surplus)
- Opportunity cost as government finances are hit
evaluation points about minimum wage
- is it the living wage
- regional differences in wages
- how many workers will actually receive wage (could just cause drop in business confidence)
