The Labour Market Part 2

Question 1

Where is the market equilibrium in a perfect labour market?

Answer 1

Where labour supply meets labour demand

Question 2

Why else would labour demand fall?

What would this lead to?

Answer 2

A recession happened

A shift in the demand curve of labour to the left

Question 3

Give another reason why the supply of labour may increase?

What effect would this have?

Answer 3

An increase in the retirement age

Labour supply would shift right causing lower wages

Question 4

What does the term sticky wages mean?

Answer 4

Wages won’t change to be with the market equilibrium
Eg contracts and the NMW

Question 5

What effect may sticky wages have?

Answer 5

In a recession wages may not decrease. Instead the company may sack a few workers

Question 6

Define monopsony power?

Answer 6

When there is only one buyer of labour in a market, there is said to be monopsony power. It means that the firm has the ability to set wages

Question 7

Draw the monopsony diagram?

Answer 7

The MC of adding an extra worker is more than the AC because to hire a new worker the firm will have to pay all of their workers more
At MC=MRP, the firm maximises profit. This means that they employ Q2 workers so they set the wage at W2.

Question 8

What 3 things occur on imperfect labour markets?

Answer 8

Monopsony power
Trade union power
Imperfect information

Question 9

What happens if trade unions are pushing for higher wages?

Answer 9

The labour market is likely to be more flexible

Question 10

What are the benefits of trade unions for employees?

Answer 10

A more flexible labour market
Increased job security
Higher wages

Question 11

What are the negatives of trade unions to employees?

Answer 11

An increase in wage will usually be followed by a decrease in employment (so some workers will get fired)

Question 12

What is a general way to think of trade unions?

Answer 12

As a counter balance to monopsonies

Question 13

What are the consequences of imperfect information?

Answer 13

Some workers may not be aware of higher paying jobs in other firm / in the industry
Some workers may not understand the long term benefits of improving their skills and education

This can limit the productivity and potential progression of workers. It makes the market inefficient

Question 14

What is the aim of a trade union?

Answer 14

To protect workers, secure jobs, improve working conditions and try and achieve higher wages

Question 15

How do trade unions and monopsony power conflict?

Answer 15

The trade union effectively tries to raise the MRP of their workers as well as increasing their wages. This will result in an increase of wage and employment to get closer to the market equilibrium. Here it would be W1,Q1.

Question 16

Give an example of a minimum price?

Answer 16

NMW

Question 17

What needs to be to case for the NMW to be effective?

Answer 17

It needs to be set above the free market price

Question 18

What may be the effect of a NMW?

Answer 18

Wages may rise but at the cost of a lower employment

Question 19

What may be the effect of a NMW with an inelastic labour demand?

Answer 19

Employment won’t decrease as much

Question 20

Explain the evidence for and against a rise in the NMW in terms of a NMW?

Answer 20

There is no evidence of a rise in unemployment with a rise of NMW so far in the UK. (data?)

However,

Question 21

What are the benefits of a NMW?

Answer 21

It will yield the positive externalities of a decent wage which will provide an incentive for people to work and it will increase the poorest people’s standard of living

The government may get more tax revenue from income tax

Question 22

What are the disadvantages of a NMW?

Answer 22

It could make it harder for young people to find a job (because of their lack of experience employers may not want to pay them that much)

A higher wage may make the UK less competitive on a international scale as they can’t compete against countries with lower wages

Question 23

Why may workers be discriminated against?

Answer 23

Formal education
Skills qualifications and training
Pay gaps
Wages and skills
Gender
Other characteristics

Question 24

Explain why someone may be discriminated against based on formal education?

Answer 24

On average those with a degree earn more than those who don’t

A lot pf the time because of imperfect information or biases people don’t value foreign education as much as uk education

Question 25

Explain why someone may be discriminated against based on skills qualifications and training?

Answer 25

Jobs which require more training and education offer higher wages. Training a worker is expensive for a firm so they give higher wages to pre trained/educated workers as an incentive

Question 26

Explain why someone may be discriminated against based on pay gap?

Answer 26

The wage gap between skilled and unskilled workers has increased in recent years due to increases in technology and globalisation which has shifted production abroad

Question 27

Explain why someone may be discriminated against based on wages and skill?

Answer 27

Skilled workers can demand higher wages as they are more productive than unskilled workers and in lower supply

Question 28

Explain why someone may be discriminated against based on gender?

Answer 28

Despite of the gender equality act 2010 women still earn less than men

This may be because:
They have more breaks (for children)
There still may be discrimination (young women may be seen as high risk because they might have children)
26% of 1500 workers felt that they had been held back from promotions because of their children

Question 29

Explain why someone may be discriminated against based on other characteristics?

Answer 29

A lot of people in the UK still have unconscious or conscious prejudices which effect people of race (which leads to them seeing their MRP as lower and therefor hiring and paying them less

Workers can also be discriminated against from age, gender, sex, race, religion …