Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics Micro - No Diagrams > Theme 3 CC5 - The labour Market > Flashcards

Theme 3 CC5 - The labour Market Flashcards

1
Q

Define demand for labour

A

The demand for labour is the number of workers that firms are willing and able to hire in a particular job or industry for a given wage. (From POV of firm)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What factors cause a movement up/down labour demand curve?
Explain downward sloping demand curve

A

RWR only
- Movement up (Contraction) - higher wage, increasing COP, reducing profits therefore less labour demand
- Movement down (Expansion) - Lower wage, cheap labour, higher demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What factors cause shifts of labour demand curve

A
  • Demand for the product - higher demand for the product increases derived demand for workers (shift to right)
  • Productivity of labour - increase in labour productivity means more cost efficient than using capital equipment (Shift to right)
  • Govt employment subsidy - reduces cost of employment (Shift to right)
  • Changes in technology - may reduce demand for low skilled labour if can be replaced by capital (Shift left)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Explain derived demand for labour and Give 2 factors

A

Demand for all factors of production is derived drom the demand for the products e.g. Businesses only want the worker for as long as people are willing and able to buy the product they produce.
- Economy state - Growing = rising labour demand as AD rises, Recession = labour demand falls as AD falls.
- Demand for product - demand for product rising, workers with relevant skills will be in greater demand. Whereas for declining industries, labour demand will fall.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the definition and equation for Elasticity of demand for labour

A
  • Elasticity of demand for labour is the responsiveness of the quantity demanded of labour to changes in the real wage rate (Price of labour).

%CQDL/%CRWR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Give 4 factors elasticity of demand for labour depends on

A
  • Labour costs as a proportion of total costs - if large proportion of total costs, demand for labour will be very responsive to changes in RWR (more elastic) and vice versa.
  • The ease of substituting other factors for labour - if easy to substitute labour for capital, demand for labour will be more responsive to RWR (more elastic) and vice versa.
  • PED of product being produced - if price inelastic, demand for labour will be wage inelastic e.g. rise in price of electricity (inelastic), demand only slightly falls, number of workers also fall only slightly.
  • Time - longer the period, easier to substitute labour for other factors of production or vice versa. In SR inelastic as firms have to employ workers and redundancy payments can be expensive.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define supply of labour

A
  • The number of workers willing and able to work in a partiucular job or industry for a given wage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Explain Labour supply curve

A
  • The higher the price of labour, the more labour will be supplied, the lower the price, the less labour will be supplied. Hence upward sloping
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Explain movements along supply curve

A
  • Movements up (Expansion) - Higher real wages boost incentives to work increasing an increased supply of labour
  • Movements down (Contraction) - Lower wages, less supply available
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Give 4 factors that shift labour supply curve

A
  • Substitute occupations - Wage differentials between different occupations will cause workers to switch jobs.
  • Barriers to entry - restrictions to an occupation e.g. qualifications
  • Net migration of labour - A rising flow of people seeking work in UK, increases labour supply, driving wages down
  • Retirement age - higher age, ^LS
  • Income tax rates - incentive to work if more disposable income, ^LS
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the two market failures in labour markets?

A
  • Geographical immobility
  • Occupational mobility
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Explain geographical immobility

A

Refers to the inability of workers to move to different places and seek and find work.
- E.g. due to cost of movement, family & social ties, rent costs/moving house cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Explain occupational immobility

A
  • Refers to the inability of workers to move between jobs as they lack appropriate skills/qualifications/training
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define and give equation for elasticity of supply of labour

A
  • Elasticity of supply of labour is a measure of the responsiveness of the quantity supplied of labour to changes in the RWR.

%cQSL/%cRWR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Give 4 determinants of elasticity of supply of labour

A
  1. Degree of skill needed - if low level of skill required, then more workers able to supply themselves for any given increase in Wage rate (more elastic). If high level of skill required, fewer workers will be available for any given wage rise (Inelastic).
  2. Amount of training required - low= elastic vice versa
  3. Time - over a long period, more workers could become trained and supply could become more elastic in response to Wage rise.
  4. Extent of unemployment and underemployment in the economy - if very low unemployment there will be fewer available workers to an industry for any given wage rise, hence supply less elastic.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the assumptions of competitive labour markets?

A
  1. Freedom of entry to labour market - i.e. no barriers to workers moving into a job or occupation
  2. Perfect knowledge - workers know about what jobs are available and conditions of employment; employers know what labour is available and how productive it is
  3. Firms are ‘wage takers’ i.e. have to pay the going wage rate determined by market conditions
  4. Homogeneous labour - all workers have the same productivity, are equally skilled and motivated
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Why do wage rates differ?

A

Labour is not homogenous - Different MRPs, different supplies of labour and discrimination e.g:

  • Experience
    -Skills required
  • Education
    Region
    Gender (illegal)
18
Q

Give a real world example/industry of wage differentials

A

Football (Premier league)
- Harry kane earns significantly more than oliver skipp, both same club. But demand for harry kane’s labour is much higher due to his value to the football team in terms of performance, shirt sales and reputation of the football club. Therefore club are willing to pay kane more than Skipp due to his MRP.
- In terms of supply, Harry kane’s supply of labour is wage inelastic due to his high skill as he is irreplaceable in spurs side if he gets injured as not many players in the world are his skill level, let alone in the spurs team. Whereas, Skipp if he was to get injured, he would be easily replaceable by another player for spurs due to his lower skill level, therefore his supply curve is less inelastic.
- E: High wages of footballers are a controversy, players have locked wages, so may be injured and do nothing all season but still get same salary, potentially unfair and doesn’t support MRP.
- Wage differences between gender (Mens/vs womens) seems unfair and discriminatory. Actually because of the money generated by mens sports is greater due to sponsorships, advertising etc therefore there is a greater MRP and clubs are willing to spend more on mens as they generate larger revenue.
E: Demand for women’s football has risen recently after Euros win and world cup performance. Therefore greater sponsorships, ads, coverage means a greater MRP and leading to higher wages for womens teams.

19
Q

Explain monopoloy buyer in the labour market

Give examples

A

Monopsonist
- If a firm/employer is the only buyer of a certain type of labour it can use its market power to force down wages. As the only employer, if the firm wants to employ one more worker it must offer a higher wage to attract that worker, and pay that higher wage to all other workers.
- Therefore the marginal cost of employing one more worker is HIGHER THAN the average wage as this includes not only the higher wage for the nth worker but also the top-up wage paid to all previous workers.

E.g. NHS- 87% of doctors (2018), state education, apple, amazon

20
Q

Compare monopsony wage rate with competitive wage rate

A

Comp=Higher as monopsony firms can use its monopsony power to exploit workers by beating down wages.

21
Q

Explain Monopoly seller of labour

A

Trade Unions - an organised association of workers in a trade or profession which is formed to promote the interests of workers.
- As workers will have little power as individuals and are therefore in a weak bargaining position, they are better off if organised in a union which can represent workers collectively when negotiating pay and working conditions.

22
Q

Explain bilateral monopoly

A

One buyer vs one seller
-If a trade union operates in a monopsony labour market then the ‘only buyer’ is facing the ‘only seller’ of labour. Example: NHS vs BMA (British medical association)
-The monopsony employer will want to pay a lower wage and the trade union will want a higher wage for its members.

23
Q

What factors will determine the actual wage in bilateral monopoly?

A

-Power of trade unions (Number and miltary of members and record of industrial action)
-State of economy (recession or boom)
-Min Wage

24
Q

Give 3 current labour market issues

A
  1. Migration
  2. Skills shortages
  3. Low productivity
25
Q

What are the effects of immigration on the labour market? SR/LR

A

SR:
- If skills of migrants and existing workers are substitues - immigration will increase comp in labour market and drive down wages. Unemployment depends on willingness to accept new lower wages.
- If migrants skills are complemEtary to existing workers, productivity will increase and lead to an rise in wages of existing workers.

LR:
- Immigration can lead to more investment if economy is growing.
- Immigration can increase comp for jobs but also create new jobs

26
Q

What are the effects of skills shortages on the economy? Give UK example

A
  • UK suffers from geographical and occupational immobility.
    E.g. Builders and engineers, limiting infrastructure-led economic growth.
27
Q

Explain low productivity as an effect on the economy. Relate to UK

A
  • Labour productivity= outper per worker over a given time period.
    E.g. UK productivity has also been very slow to recover since the financial crisis.
    Could be due to low wages (lack of incentive), lack of skills and infrastructure.
28
Q

Give 2 methods of government intervention in labour markets

A
  1. Maximum wage
  2. Minimum wage
29
Q

Why would govts impose a max wage?

A

-In the past it has been set e.g. to control inflation, maximum pay rises set by UK govt in 1970s.
- Recent discussions to set maximimum reward for CEOs as a ratio to pay of lowest earner as CEO pay has risen far more than workers.
- Public sector workers

30
Q

What is the effect of a maximum wage?

A

Labour demand is greater than supply, therefore firms are under resourced.

31
Q

Give reasons for and against a max wage

A

For: - More equal distribution of income, reduced poverty
- People earn too much e.g. footballers (Inequity)
- Cut costs for firms
Against: -Disincetvise elite athletes etc to play in England, may just move abroad.
-MRP is that high, therefore would be unfair to pay them less if they deserve it.
- Govts lose out on tax revenues, therefore to decrease wages just tax more

32
Q

Define and explain effect of Min wage

A
  • the legal minimum rate per hour which employers must pay their workers.
  • Supply is greater than demand as more people want to work for higher wages but firms want to employ less. Therefore, classical/real wage unemployment occurs.
33
Q

Why might min wage be imposed?

A
  • Market failure:
    A wasted resource i.e. allocative inefficiency – workers should be reallocated to other sectors where insufficient labour exists BUT this may require training and/or relocation to tackle occupational and geographical immobility respectively.
34
Q

Give reasons for and against a minimum wage

A

For: - Reduce poverty, wage diferentials etc
- ^Incentive for workers to supply their labour, ^productivity, ^output
- Counter monopsonist employer who may exploit workers
Against:
- RW Unemployment (Depends on elasticity) as less demand for higher cost labour
- ^Cost to businesses, less competitive ^COP,
- cost push inflation

35
Q

Evaluate Min wage

A

Effect depends on:
- The extent the minimum wage exceeds the equilibrium WR - Larger gap, greater unemployment
- The elasticities of demand and supply for labour - More elastic, ^Classical/RW unemployment
- The industry - Low vs high skilled workers, high skills likely not effected alrdy earning more.

36
Q

Give 3 govt policies to tackle occupational immobility

A
  1. Improve education & training to incorporate more transferable skills
  2. Reducing discrimination in the labour market
  3. Reducing barriers to entering occupations e.g. degree
37
Q

Give 4 govt policies to tackle geographical immobility

A
  1. Improving information about job vacancies
  2. Relocation subsidies
  3. Provision of low cost housing
  4. Subsidising firms to locate in areas of high unemployment
  5. Better transport infrastructure
38
Q

Define Marginal revenue Product and give equation

A

the addition to total revenue from the last worker employed. MPP X MR

39
Q

What is profit max of labour?

A

Marginal cost (of one more unit of labour) = Marginal revenue (from output of last worker)

40
Q

Explain DMR in context of Labour markets

A
  • As more workers are employed and added to fixed factors in the SR, their productivity will fall due to DMR.
  • Eventually revenue added from one more worker will be same as the wage rate (cost of employing the worker), at this point no more workers will be employed.
41
Q

What are the assumptions of MRP theory

A
  • Workers are homogenous
  • Firms have no buying power i.e. must pay market rate
  • No trade unions
  • Productivity of each worker can be measured
  • Supply of labour is perfectly elastic
  • Product sold in perfect comp market
42
Q

Evaluate MRP theory

A
  • Hard to measure labour productivity, especially if there is no physical output (i.e. service sector)
  • Often wages are set with no consideration of demand for labour e.g. public sector

Economics Micro - No Diagrams (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions