Theme 3 - Labour markets Flashcards
what is supply of labour
the number of hours people are willing and able to supply at a given wage rate
what is demand of labour
the quantity of labor that employers are willing and able to hire at a given wage rate in a given time period
how can net migration affect the supply of labour
net migration - fills gaps in the labour market and alleviate shortages
- Migrants often bring diverse skills and experiences, which can enhance the overall productivity and innovation within the labor market. High-skilled migrants can fill specialized roles
how can the income effect affect the supply of labour
- When wages increase, workers experience a rise in their income, which can lead to a desire for more leisure time. As a result, some individuals may choose to work fewer hours because they can maintain their desired standard of living without working as much
- Some workers have specific income targets or financial goals. Once these targets are met, they might reduce their work hours, showing a negative relationship between income and labor supply.
how can the minimum wage affect the supply of labour
- A higher minimum wage can incentivize more individuals to enter the labor market. labour more attractive than leisure, unemployment benefits or informal work
- By providing a higher guaranteed income, a minimum wage can improve job satisfaction and reduce turnover rates among low-wage workers . This stability can lead to a more reliable supply of labor as workers are less likely to leave their jobs in search of better-paying opportunities elsewhere
- While a higher minimum wage can attract more workers, it might also lead to fewer job opportunities if employers cannot afford the increased labor costs. Some businesses may reduce hiring, cut hours, or invest in automation to offset higher wages.
what is minimum wage
the national living wage is an example of a price floor set above price equilibrium that employers cannot legally undercut
what is a monopsony
a single dominant buyer of a specific good
national minimum wage figures 2024
- £11.44 for over 21
- £8.60 18 - 21
- £6.40 under 18s and apprentices
how do the non monetary characteristics of a job affect the supply of labour
Jobs that offer a positive work environment, including supportive management, friendly coworkers, and a healthy work-life balance, are more attractive to workers. These can increase job satisfaction, encouraging more individuals to supply their labor to these positions.
- jobs with poor working conditions, such as high stress, long hours, or unsafe environments, can deter individuals from entering or remaining in these positions, reducing the labor supply.
- Jobs that provide opportunities for career development, such as training programs, promotions, and skill development, are likely to attract more workers. They appeal to workers who want to further their careers
- Jobs that offer job security and stability, such as permanent contracts, benefits, and strong union presence, tend to attract a higher supply of labor. Workers value the assurance of steady income and long-term employment, which can outweigh higher wages in less secure positions.
- Conversely, jobs with high turnover rates, temporary contracts, or volatile industry conditions may find it harder to attract and retain workers
how does the substitute effect affect the supply of labour
- When wages rise, the opportunity cost of leisure increases because the potential earnings forgone by not working become higher. This incentivizes individuals to substitute leisure for labor, leading to an increase in the supply of labor
- Higher wages make working additional hours more appealing. For example, a part-time worker earning a higher hourly wage might decide to switch to full-time employment to take advantage of the higher earnings, thereby increasing their total labor supply.
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how do barriers to entry affect the supply of labour
- Occupations that require extensive education, specialized training, or certifications can create significant barriers to entry. These barriers limit the number of individuals qualified to enter the field, thereby restricting the supply of labor.
- Certain industries or occupations require significant financial investment to enter, such as starting a business, purchasing equipment, or undergoing costly training programs. These economic barriers can deter potential entrants, thus limiting the labor supply.
how would the price of a good or service influence the demand for labour
- Labor demand is derived from the demand for goods and services that labor helps produce. When the price of a good or service rises, it often indicates higher demand for that product. To meet this increased demand, firms typically need to produce more, which usually requires hiring additional workers.
- When the price of a good or service rises, firms typically enjoy higher profit margins. This increased profitability can lead to greater investment in production capacity, including hiring more workers.
how can labour productivity impact the demand for labour
- When workers become more productive, they can produce more output in the same amount of time. This increased efficiency can lower the average cost of production for firms, making their products more competitive in the market. As a result, firms may experience higher demand for their products, prompting them to expand production and hire more workers.
- : Significant improvements in labor productivity often come from technological advancements and better capital equipment. While this can initially increase labor demand due to higher production levels, over time, firms might invest more in capital equipment that can substitute for labor, particularly for routine and low-skill tasks.
- When labor productivity increases, firms may pass on some of the productivity gains to workers in the form of higher wages. dditionally, higher wages can lead to increased consumer spending, further driving demand for the firm’s products and potentially increasing the demand for labor to meet this higher demand.
how does cost of labour affect the demand for labour
- When the cost of labor rises, firms face higher expenses for each worker they employ. To minimize costs and maintain profitability, firms may reduce their demand for labor by hiring fewer workers, reducing hours, or even laying off employees.
- When labor costs are high, firms have an incentive to substitute labor with capital. For example, a company might invest in automation or more advanced machinery to reduce its reliance on costly human workers, thereby decreasing the demand for labor.
- Higher labor costs can lead to higher production costs, which often get passed on to consumers in the form of higher prices. This can reduce the competitiveness of a firm’s products in the market, potentially leading to lower sales and reduced production, further decreasing the demand for labor, and also contributes to cost push inflation
how does the cost and availability of substitutes affect the demand for labour
- When the cost of substitutes such as automation, machinery, or software decreases, firms may opt to replace labor with these more cost-effective alternatives.
- : As technology becomes more advanced and readily available, it can more effectively substitute for labor, particularly in routine and manual tasks
- Human workers often have the advantage of being flexible and adaptable to a variety of tasks and changing conditions, something that substitutes like machinery may not be able to match easily. In dynamic industries where tasks frequently change, the adaptability of human labor can be more valuable than rigid automation,
