The Labour Market Flashcards
What is the definition of labour demand?
The number of workers that firms are willing and able to hire at a given wage rate in a given time period.
What is derived demand in the context of labour?
Labour demand is derived from the demand for the goods and services that labour helps to produce.
What is the Marginal Revenue Product (MRP) of labour?
The additional revenue generated by employing one more worker.
How is MRP calculated (only works in perfectly competitive markets)?
MRP = Marginal Physical Product (MPP) × Marginal Revenue (MR).
Otherwise as addition to total physical product.
Why does the demand curve for labour slope downwards?
Due to the law of diminishing returns; as more workers are employed, their additional output (MPP) falls, reducing MRP.
What factors influence the demand for labour?
Productivity, wage rate, price of goods produced, and level of economic activity.
How does wage elasticity of demand for labour depend on the ability to substitute capital?
If capital can easily replace labour, demand for labour is more elastic.
What happens to labour demand if the price of a firm’s product increases?
Labour demand increases as MRP rises.
How does technological advancement affect labour demand?
It can reduce demand for labour by replacing workers with machines or increase it by creating new jobs.
What impact does an increase in minimum wage have on labour demand?
It may reduce demand for labour if firms cannot afford higher wages.
How does labour productivity affect employment levels?
Higher productivity can lead to higher wages and employment if firms remain competitive.
What is the relationship between labour demand and economic growth?
During economic growth, labour demand rises as firms expand production.
How does globalisation impact the demand for labour?
It can increase demand in high-skill industries but reduce it in low-skill industries due to outsourcing.
What role do trade unions play in influencing labour demand?
They negotiate wages and working conditions, which can affect employment levels.
What is the definition of labour supply?
The number of workers willing and able to work at any given wage rate.
Why is the labour supply curve upward sloping?
Higher wages encourage more workers to offer themselves for work.
How does the supply of labour differ between individual markets and the whole economy?
Both have upward sloping supply curves, but for the economy, higher wages may attract inactive workers.
What causes a movement along the supply curve of labour?
A change in the wage rate.
What factors can shift the supply curve of labour?
Size of the working population, net advantages of work, wages in other jobs, number of qualified workers, length of training, barriers to entry, trade unions, tax and benefit incentives, and labour subsidies.
How does the size of the working population affect labour supply?
A larger working population increases labour supply, while a smaller one reduces it.
How do non-monetary benefits influence labour supply?
Better working conditions, job security, and perks can shift the supply curve to the right.
What impact do wages in other jobs have on labour supply?
Higher wages in alternative jobs can reduce labour supply in a specific industry.
How does the length of training affect labour supply?
Longer training periods reduce short-term supply, making labour more inelastic.
What role do trade unions play in labour supply?
They can attract workers to industries or reduce supply through strikes and work-hour limitations.
How do taxes and benefits impact labour supply?
High taxes and generous benefits may discourage work, reducing supply.
What is the substitution effect of a wage rise?
Higher wages make work more attractive than leisure, increasing hours worked.
What is the income effect of a wage rise?
Higher wages may allow workers to maintain income with fewer working hours, reducing labour supply.
Why is an individual’s labour supply curve backward-bending?
At lower wages, the substitution effect dominates; at higher wages, the income effect dominates.
What is the difference between actual and potential labour supply?
Actual supply includes those willing and able to work; potential supply includes inactive workers who might enter the labour force.
How does a perfectly competitive labour market set wages?
Firms are wage takers and must accept the equilibrium wage.
How does an imperfectly competitive labour market set wages?
Firms have wage-setting power and may have to offer higher wages to attract workers.
What factors affect the wage elasticity of labour supply?
Skills and qualifications, vocational work, trade unions, unemployment levels, and time period.
How does unemployment influence labour supply elasticity?
Higher unemployment makes supply more elastic, as more workers are available.
