The Labour Market Part 1 Flashcards
What type of market is the labour market?
A factor market
How is the supply of the labour market determined?
By those who want to work
What type of demand is in the labour market?
What does this mean?
Derived demand
The demand for labour comes from the demand for what it produces
What is demand related to?
Productivity of labour
Demand of the product
What is the elasticity of demand of labour linked to?
How price elastic the demand for labour is
What will effect where (on a graph) employees will hire and pay?
…
The wage rate
All other factors will cause a shift in the curve
What is demand for labour affected by?
Wage rate
Demand for products
Productivity of labour
Substitutes for labour
How profitable the firm is
Number of firms in the market
Explain the factor effecting demand for labour: Wage rate
The downwards sloping demand curve shows the inverse relationship between how much the worker is paid and the number of workers employed
(Photo of demand curve for labour)
When wages get hire many firms may consider switching production to capital, which may be cheaper and more productive than labaour
Explain the factor effecting demand for labour: Demand for products
Since the labour market works on derived demand the higher the demand for the product the higher demand for labour to make that product
Explain the factor effecting demand for labour: Productivity of labour
If workers are more productive demand will increase
Productivity can be increased through education, training and using technology
Explain the factor effecting demand for labour: Substitutes for labour
If labour is easily replaced by cheaper capital then demand for labour will fall
This will shift the demand curve to the left
(Photo of shift)
Explain the factor effecting demand for labour: Profit of the firm
More profit means they can employ more
Explain the factor effecting demand for labour: Number of firms in the market
If there is a monopsony (eg National Rail) demand will be lower but with more employers demand increases
Lower demand for labour can lead to lower wages, so trade unions try to encourage higher wages
What is the marginal productivity theory of the demand of labour?
A theory that states that demand for labour is dependent on the MRP
How do you calculate MRP?
Marginal Revenue Product = Marginal Product X Marginal Revenue
MRP = MP X MR
What is MP of labour (Marginal Product)?
The additional output each unit of labour can produce
What is MR of labour?
The additional revenue derived per extra unit of laboir
In the MRP theory where is the equilibrium?
Where is MRP shown on a graph?
When MC (of an extra unit of labour) = net benefit of one extra unit of labour
It is shown by the demand curve
Why would labour demand be inelastic?
Few or no substitutes
In what types of markets are strikes most affective and why?
Inelastic markets with little substitutes
The increase in wage will result in a small reduction in employment
What does the elasticity of demand measure?
How responsive the demand for labour is when the market wage rate changes
What is the elasticity of labour demand effected by?
How much labour costs as a proportion of TC. As this increases elasticity increases
If it is easy to substitute the labour elasticity increases
The PED of the product (the more price elastic the product is the more price elastic labour demand is)
What factor influence supply of labour?
Wage rate
Demographic of the population
Migration
Advantages of work
Leisure time
Trade unions
Taxes and benefit
Training
How is supply of labour calculated?
The number of workers willing to and able to work at the current wage rate X by the number of hours that they can work. It is influenced by monetary and non monetary considerations.
Give an example of a non monetary good?
Fringe benefits
Work satisfaction
Explain how the supply of labour is effected by: wage rate
The upwards sloping supply curve shows the proportional relationship between how much the worker is getting paid and the number of workers willing and able to work
Explain how the supply of labour is effected by: demographics of the population
If there are more people retiring than new workers entering the economy the supply of Labour will decrease
This can be shown by a shift in the supply curve to the right
Explain how the supply of labour is effected by: Migration
Migrants are usually of working age so when migration happens supply of labour generally increases. These migrants are usually under training and used to low wages so they are often employed at NMW jobs
Explain how the supply of labour is effected by: advantages of work
This can influence people’s willingness to work and for longer hours. This could include lower childcare costs, more holiday work, higher wages, job satisfaction.
Explain how the supply of labour is effected by: Leisure time
Leisure time is a substitute to work. Leads to retirement/ part time jobs
This may be effected by age, income without work, taxes, number of dependents the person has
Explain how the supply of labour is effected by: Trade unions
Trade unions could attract workers as they will feel like their writes will be defended
Explain how the supply of labour is effected by: Taxes and benefits
If taxes are too high and benefits are too generous then people may decide not to work
Explain how the supply of labour is effected by: Training
Of lots of training or higher qualifications are needed then supply may fall
Bit if this training is subsidised by the government then supply could increase
