The Labour Market Part 2 Flashcards
Where is the market equilibrium in a perfect labour market?
Where labour supply meets labour demand
Why else would labour demand fall?
What would this lead to?
A recession happened
A shift in the demand curve of labour to the left
Give another reason why the supply of labour may increase?
What effect would this have?
An increase in the retirement age
Labour supply would shift right causing lower wages
What does the term sticky wages mean?
Wages won’t change to be with the market equilibrium
Eg contracts and the NMW
What effect may sticky wages have?
In a recession wages may not decrease. Instead the company may sack a few workers
Define monopsony power?
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
Draw the monopsony diagram?
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.
What 3 things occur on imperfect labour markets?
Monopsony power
Trade union power
Imperfect information
What happens if trade unions are pushing for higher wages?
The labour market is likely to be more flexible
What are the benefits of trade unions for employees?
A more flexible labour market
Increased job security
Higher wages
What are the negatives of trade unions to employees?
An increase in wage will usually be followed by a decrease in employment (so some workers will get fired)
What is a general way to think of trade unions?
As a counter balance to monopsonies
What are the consequences of imperfect information?
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
What is the aim of a trade union?
To protect workers, secure jobs, improve working conditions and try and achieve higher wages
How do trade unions and monopsony power conflict?
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.
Give an example of a minimum price?
NMW
What needs to be to case for the NMW to be effective?
It needs to be set above the free market price
What may be the effect of a NMW?
Wages may rise but at the cost of a lower employment
What may be the effect of a NMW with an inelastic labour demand?
Employment won’t decrease as much
Explain the evidence for and against a rise in the NMW in terms of a NMW?
There is no evidence of a rise in unemployment with a rise of NMW so far in the UK. (data?)
However,
What are the benefits of a NMW?
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
What are the disadvantages of a NMW?
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
Why may workers be discriminated against?
Formal education
Skills qualifications and training
Pay gaps
Wages and skills
Gender
Other characteristics
Explain why someone may be discriminated against based on formal education?
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
Explain why someone may be discriminated against based on skills qualifications and training?
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
Explain why someone may be discriminated against based on pay gap?
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
Explain why someone may be discriminated against based on wages and skill?
Skilled workers can demand higher wages as they are more productive than unskilled workers and in lower supply
Explain why someone may be discriminated against based on gender?
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
Explain why someone may be discriminated against based on other characteristics?
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 …
