Theme 3 - Business Behaviour And The Labour Market Flashcards
The demand for labour … when demand increases
Increases
What is derived demand?
Demand that comes as a result from demand for something else
What is marginal revenue product of labour?
The extra revenue generated when an additional worker is employed
Firms only employ up to where …
Revenue generated = Wage costs
Formula for MRPL (Marginal Revenue Product of Labour)?
MRPL = Marginal product of labour x Marginal Revenue
Firms are assumed to be … and they will choose a level of employment that maximises profit
Profit maximisers
Describe the Marginal Revenue Product Curve
Y-axis - wage rate
X-axis - quantity of labour
Line increases steeply at first, peaks, then decreases at a less steep gradient (lablled MRP)
Describe the Demand Curve for Labour
Y-axis - wage rate
X-axis - quantity of labour
Straight line, negative gradient (labelled D)
MRPL is taken as the basis for the … curve
Labour Demand
Problems with the MRPL (5)
- measuring labour efficiency/productivity can be difficult
- hard to measure in consultancy and education sectors
- hard to measure individual productivity in terms of collaborative work
- many products are the result of inputs drawn from different countries - each contributing to value added
- many people have the ability to set their own pay
In the competitive labour market, it is assumed there is … and … …
Occupational and geographical mobility
Factors influencing the demand for labour (6)
- the wage rate (move along curve)
- demand for products (shift along curve)
- productivity of labour
- profitability of firms
- substitutes
- the number of ‘buyers’ of labour
Elasticity of supple for changes in wage rates for low skilled jobs is quite …
Elastic (and wage rate is lower)
High paid jobs are relatively …
Inelastic (and wage rate is higher)
What is the supply of labour?
The number of workers willing and able to work, multiplied by the hours they are willing and able to work
Factors effecting the supply of labour (10)
- wage rate
- the size of the working population
- migration
- people’s preferences for work
- tax and benefit incentives and disincentives
- net advantages of work
- work and leisure
- length of training
- barriers to entry (qualifications)
- labour subsidies
Where is the profit maximisation point on the MPRL curve?
Where MC = MR
Describe the backwards bending supply of labour
Y-axis - wage rate
X-axis - quantity of labour
Gradual increase then sharp increase before it bends back on itself (like a candy cane)
As real wages … , beyond a certain level, people will substitute leisure for paid work and so higher wages lead to a decrease in the labour supply and so less labour because the time being offered for sale, income and there will be … demand
Increae / Lower
What is the substitution effect?
When wages increase, workers will give up leisure to do more hours of work because work now has higher rewards.
What is the income effect?
When wages increase, workers reduce the amount of hours they work because they can maintain a target level of income through fewer hours.
What is the Equilibrium Wage Rate?
The wage that brings the demand and supply of labour into equilibrium
Where is unemployment on the Minimum Wage diagram?
Q2 to Q3 - total unemployment
Q1 to Q2 - the unemployment as a result of the minimum wage
Q1 to Q3 - those who are unemployed and looking for work
At low wage rates, demand tends to be more …
Elastic