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
🔁 Increased labour supply
→ A net inflow of migrants increases the number of available workers
→ This shifts the labour supply curve to the right
→ Puts downward pressure on wages, especially in low-skilled sectors
→ Can reduce labour costs for firms and increase employment opportunities in some sectors
📉 Wage competition in specific sectors
→ Migrants may be more willing to work for lower wages or in less desirable jobs
→ Increases competition for these jobs
→ Native workers may be priced out or displaced
→ Leads to calls for stronger labour protections
📈 Improved flexibility in the labour market
→ Migration can help fill skill shortages (e.g. construction, healthcare)
→ Allows firms to expand output without delays
→ Increases productivity and growth in certain industries
→ Reduces pressure on wages in high-demand areas
🔄 Potential for crowding out
→ If there is high unemployment, net migration may increase competition for jobs
→ Could discourage some native workers from participating in the labour force
→ Especially if wages fall or job security decreases
→ Can worsen regional inequality and resentment if not managed
how can the income effect affect the supply of labour
💰 Higher Wages Lead to Increased Disposable Income
🔗 When wages rise, individuals experience an increase in their disposable income, allowing them to afford more goods and services
🔗 As people feel wealthier due to higher wages, they may decide to work fewer hours or supply less labour
🔗 This is because they have more financial security and are able to meet their desired standard of living with less work
🔗 The result is a decrease in labour supply as people may prioritize leisure or other non-work activities 🏖️💸
👨👩👧👦 Increased Income Reduces the Need for Additional Work
🔗 Higher wages may make individuals feel more financially comfortable and reduce the need for additional household income
🔗 As a result, they may choose to reduce working hours or withdraw from the labour market, particularly if they can support their families with fewer hours worked
🔗 The increased income effect reduces the urgency to seek additional work, as people achieve their income goals with less effort
🔗 Consequently, the supply of labour may decrease as individuals become more selective about the amount of labour they wish to provide 💼❌
🏡 Higher Wages May Encourage More Leisure Time
🔗 When individuals earn higher wages, they may feel that they can afford to spend more time on leisure activities, such as hobbies, travel, or family time
🔗 The income effect can make people more willing to trade-off work for leisure, especially if the wage increase allows them to meet their needs with fewer hours worked
🔗 As a result, workers may reduce their labour supply, leading to a backward-bending supply curve of labour at higher wages (where supply decreases as wages increase beyond a certain point)
🔗 This means that as wages rise, the labour supply curve may become less elastic or even start to decrease for some workers 🏖️🏠
🏅 Impact on Workers with a High Income Preference
🔗 For workers who prioritize higher income levels, an increase in wages may push them to supply more labour initially, as they seek to maximize their earnings
🔗 However, over time, as their income rises, they may reach a point where their needs and wants are sufficiently met, and they no longer feel the need to work additional hours
🔗 This leads to a situation where, after a certain wage level, the income effect causes them to work less and prefer leisure or non-work activities instead
🔗 As a result, at very high wage levels, the supply of labour may begin to fall due to the diminishing marginal utility of income for those workers 🏠📉
⚖️ Trade-Off Between Income and Leisure
🔗 The income effect encourages workers to trade-off income for leisure once their income goals are met, as they value their leisure time more than additional earnings
🔗 If wages rise significantly, workers may prioritize leisure over additional work hours, especially if they have more disposable income than required for their needs
🔗 The reduction in labour supply occurs because workers may reach a point where the marginal benefit of additional work no longer outweighs the marginal utility of extra leisure time
🔗 In this case, the labour supply curve shifts backwards, reflecting a decrease in labour supply as wages increase 🛋️💼
how can the minimum wage affect the supply of labour
- Higher Wages → Increased Incentive to Work → Greater Labour Participation
A higher minimum wage increases earnings for low-paid workers, making work more attractive.
More people enter the labour market, shifting the labour supply curve outward.
This can reduce labour shortages in industries reliant on low-wage workers (e.g., retail, hospitality).
Over time, economic participation increases, especially for young workers and those re-entering employment.
- Higher Wages → Increased Opportunity Cost of Not Working → Reduced Voluntary Unemployment
A higher minimum wage raises the financial benefit of employment relative to welfare benefits.
Some people who were previously discouraged from working (due to low pay) now find it worthwhile to seek jobs.
This can reduce voluntary unemployment, particularly among low-income and part-time workers.
As more people move into work, dependency on government benefits may decline.
- Higher Wages → Increased Competition for Jobs → Higher Job Requirements → Barriers to Entry for Low-Skilled Workers
Employers facing higher wage costs may demand higher skills and productivity from workers.
This can make it harder for low-skilled, inexperienced, or younger workers to get hired.
If firms cut entry-level positions or replace workers with automation, job seekers struggle to find work.
Over time, this may reduce the supply of low-skilled labour, increasing long-term unemployment in that group.
- Minimum Wage Above Equilibrium → Potential Job Losses → Reduced Labour Supply in Certain Industries
If the minimum wage is above the market-clearing wage, some firms cut jobs or reduce working hours.
Workers who lose jobs may exit the labour force, decreasing the overall supply of labour.
Industries with tight profit margins (e.g., small businesses, care work) may be forced to downsize.
Over time, fewer low-wage jobs may exist, making labour supply more constrained in affected sectors.
- Higher Wages → Substitution Effect → More People Seeking Part-Time or Flexible Work
A higher minimum wage makes each hour of work more valuable, encouraging some workers to work fewer hours.
Workers may prioritise work-life balance, leading to more part-time and flexible working patterns.
This can increase supply in part-time jobs but reduce full-time labour availability.
Over time, employers may struggle to fill full-time roles, especially in physically demanding jobs.
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
🌱 Job Satisfaction and Enjoyment
🔗 If a job offers a high level of job satisfaction, workers may be more willing to supply their labour, even if wages are not as high as in other sectors
🔗 Workers are likely to value intrinsic rewards, such as personal fulfillment, sense of purpose, or enjoyment of work over monetary compensation
🔗 As a result, people might choose to supply more labour in jobs that align with their interests or values, despite potentially lower wages
🔗 This leads to higher labour supply in occupations with high non-monetary benefits, such as teaching, healthcare, or creative industries 🎨👩🏫
👥 Workplace Flexibility
🔗 Jobs that offer flexible working hours or the ability to work from home can significantly increase the supply of labour
🔗 Workers value work-life balance, and flexible arrangements allow them to meet personal commitments while continuing to work
🔗 The ability to adjust hours or work remotely can encourage more workers to enter or remain in the labour market, especially for those with caregiving responsibilities or other time constraints
🔗 As a result, the supply of labour in flexible roles increases because workers are attracted by the non-monetary benefit of a better work-life balance 🏡💼
🏆 Career Advancement Opportunities
🔗 Jobs that offer clear career progression, training, and promotion opportunities may attract workers looking to develop skills and advance in their careers
🔗 The non-monetary benefit of career growth can lead to higher labour supply, as workers are motivated by future opportunities for increased responsibility and status
🔗 This can particularly affect workers who are career-driven or those looking for a long-term commitment in a profession where they can develop and grow
🔗 As a result, industries with strong advancement prospects may experience higher labour supply, as workers are drawn to the non-monetary benefits of professional development 🏅📈
🤝 Job Security
🔗 Jobs that offer high levels of job security or permanent contracts tend to attract workers who value stability and certainty in their careers
🔗 The non-monetary benefit of job security can lead to a higher supply of labour, especially from workers who are risk-averse or those with family commitments
🔗 Workers may prefer stable, long-term positions, particularly in industries where the risk of unemployment is lower, even if the wages are not the highest available
🔗 This results in an increase in labour supply as people seek the security and peace of mind provided by stable employment 🏠👨👩👧👦
🤗 Positive Work Environment and Relationships
🔗 A positive work culture, where employees have good relationships with their colleagues and managers, can encourage individuals to stay in or join the labour market
🔗 Workers are more likely to supply their labour if they feel valued, respected, and included in the workplace, contributing to overall job satisfaction
🔗 A supportive work environment that promotes collaboration and provides mental health support can lead to lower turnover rates and higher employee retention, attracting more workers to the sector
🔗 As a result, industries with strong positive workplace cultures may see increased labour supply due to the non-monetary benefit of social and emotional fulfillment 🤝💖
🌍 Social Impact and Contribution to Society
🔗 Jobs that allow individuals to make a positive impact or contribute to society often attract those with intrinsic motivations to help others
🔗 Non-monetary benefits, such as working in the charity sector, public health, or education, can motivate workers to supply more labour even when monetary compensation is lower
🔗 Workers are often driven by the sense of purpose they get from contributing to causes they care about, which can be more appealing than higher wages
🔗 As a result, the labour supply in jobs with high social value, like healthcare or education, increases as workers are drawn to the non-monetary satisfaction of helping others 🌍❤️
🚀 Workplace Benefits and Perks
🔗 Jobs offering additional non-monetary benefits, such as healthcare, pension contributions, or paid leave, can increase the labour supply
🔗 Workers are likely to value these perks highly, as they contribute to their overall well-being and can reduce personal expenses
🔗 Benefits like childcare support, fitness memberships, or employee discounts can make jobs more attractive, particularly for workers with specific needs
🔗 As a result, sectors offering substantial non-monetary benefits may see an increase in labour supply, as workers are drawn to the overall value of the entire compensation package 💪🏠
how does the substitute effect affect the supply of labour
💸 Higher Wages Make Work More Attractive
🔗 When wages rise, the substitution effect suggests that workers will be more inclined to supply more labour because the opportunity cost of not working (i.e., the income they are forgoing) becomes higher
🔗 As wages increase, the relative reward for working compared to leisure or other non-work activities becomes more attractive
🔗 Workers will substitute leisure time for work, as the additional income gained from working outweighs the value of free time or leisure activities
🔗 As a result, labour supply increases when wages rise, as people are more willing to trade leisure for higher earnings 💼💰
⏳ Short-Term Response to Higher Wages
🔗 In the short term, when wages rise, workers will often increase their supply of labour to take advantage of the higher immediate income
🔗 The substitution effect leads workers to allocate more of their available time to paid work, as the additional benefit (higher wage) becomes a stronger incentive than their usual activities
🔗 This effect tends to be stronger in the short run, as workers adjust their schedules or take on more hours to earn more money
🔗 Therefore, in the short term, an increase in wages will increase the labour supply as people substitute leisure time for additional working hours 🕒💼
⏳ Long-Term Adjustments
🔗 In the long term, the substitution effect might still encourage workers to supply more labour when wages increase, but the response might diminish as workers adjust to the higher income
🔗 Over time, workers may become less inclined to increase their labour supply significantly, as they begin to enjoy the higher income from previous work and may prefer more leisure or other activities
🔗 The substitution effect is often stronger in the short term, but over the long run, the income effect might counterbalance it, as workers may prefer to reduce working hours once they achieve their desired income level
🔗 Therefore, the long-term supply of labour might increase initially but could level off or decrease as workers value their leisure time more 🏖️💸
👨👩👧👦 Opportunity Cost of Time Increases with Higher Wages
🔗 As wages rise, the substitution effect leads workers to see more value in working since they are forgoing more income when not working
🔗 Workers who may have previously been able to afford leisure activities or part-time work are now motivated to work more hours, as the opportunity cost of leisure becomes more significant
🔗 As the wages increase, the reward for working extra hours becomes a stronger incentive, and people will substitute leisure or personal time for additional work
🔗 This results in an increase in labour supply as the increased opportunity cost of not working encourages individuals to allocate more time to employment 🕰️💼
🌍 Sector-Specific Impact
🔗 In certain sectors, particularly those with hourly wages (e.g., retail, hospitality), an increase in wages leads to a greater supply of labour as workers choose to substitute leisure for additional working hours
🔗 For example, if wages in a specific industry rise, people may shift from other sectors or non-working activities to supply labour in that industry, as the incentive to work is now higher
🔗 The substitution effect drives workers to move across sectors, increasing the labour supply in high-paying industries, as people are motivated by higher monetary rewards
🔗 This results in sectoral shifts in labour supply due to the relative attractiveness of higher wages in certain jobs 🏪📈
how do barriers to entry affect the supply of labour
🚪 High Barriers Limit Access to Certain Jobs
🔗 Barriers to entry, such as high education costs, licensing requirements, or long training periods, can limit the number of workers who are able to enter a particular occupation
🔗 When entry to a job or industry is difficult due to significant barriers, fewer people are willing or able to supply their labour in that sector
🔗 This reduces the supply of labour available for that industry, as individuals may be discouraged by the upfront costs or time investment required to enter
🔗 As a result, high barriers to entry create lower labour supply in restricted sectors, especially where qualifications or experience are highly demanding 📚⛔
🎓 Educational and Training Barriers
🔗 High education requirements or the need for extensive specialized training can create a barrier to entry in certain professions (e.g., doctors, lawyers, engineers)
🔗 These requirements can discourage potential workers who lack the resources or time to acquire the necessary education or skills
🔗 As fewer individuals meet these educational or skill thresholds, the supply of labour in these sectors becomes restricted
🔗 Therefore, professions with higher educational or training barriers experience lower labour supply due to the difficulty of entering without significant qualifications 🎓📉
💸 Financial Barriers to Entry
🔗 High initial financial costs, such as for certifications, equipment, or business start-up capital, can deter individuals from entering certain professions
🔗 For example, entering the medical profession may require years of costly education, and becoming a self-employed entrepreneur often requires substantial capital
🔗 As a result, only those who can afford to overcome these financial barriers are able to enter the labour market in these industries
🔗 This creates a restricted supply of labour, as those without financial resources may be excluded from these sectors 💰🚫
🏛 Regulatory Barriers
🔗 Regulations such as licensing laws, trade restrictions, or government-imposed barriers can limit the number of workers able to enter specific industries
🔗 For instance, certain professions may require an official license or permit to work (e.g., teaching, healthcare, law), and these regulations can reduce the labour supply as they restrict entry
🔗 The complexity of these regulations can discourage workers who would otherwise be interested in these fields, further limiting the pool of labour
🔗 Therefore, strict regulations and barriers to entry lead to a decrease in labour supply in regulated industries ⚖️🚷
🏃♂️ Geographical Barriers
🔗 Geographical barriers can restrict the labour supply in industries that require workers to be in specific locations or regions
🔗 For example, certain jobs may be located in remote areas or require workers to move to certain cities or countries, creating a barrier for those who are unable or unwilling to relocate
🔗 The higher the cost or difficulty of overcoming geographical barriers, the lower the supply of labour for those jobs or sectors
🔗 This leads to lower labour supply in locations with geographical constraints or when relocation is difficult 🗺️🚶♀️
💼 Market Power of Employers (Monopsony)
🔗 In some markets, monopsonistic employers (where there is only one or a few large employers) can create barriers to entry by controlling wages, job availability, and other conditions that limit worker mobility
🔗 Workers may be discouraged from entering the labour market in these sectors if they believe that employers hold too much power over employment conditions or wages
🔗 As a result, monopsonies can suppress the supply of labour by making entry into the sector less attractive and by controlling the job opportunities available to workers
🔗 Therefore, monopsonistic market structures create barriers that reduce the labour supply available to competing firms and industries 🏢❌
🌐 Technological Barriers
🔗 Certain industries may have high technological barriers to entry, where individuals need access to expensive equipment, software, or specialized knowledge to compete effectively
🔗 The cost of acquiring these technologies or the skills required to use them may prevent many potential workers from entering the sector
🔗 This can limit the supply of labour in industries that are technologically advanced or rely on cutting-edge technologies (e.g., AI, biotechnology)
🔗 As a result, industries with significant technological barriers will experience a lower labour supply due to the high demand for specific expertise and resources 🖥️🔬
🏆 Barriers Due to Discrimination
🔗 Discrimination based on gender, race, or other factors can create informal barriers to entry in the labour market
🔗 Discriminatory hiring practices or workplace cultures can reduce the labour supply by discouraging certain groups of workers from entering or remaining in the workforce
🔗 Workers from underrepresented groups may face unfair treatment or feel that opportunities are limited, leading to lower participation in the job market
🔗 As a result, these discriminatory barriers can contribute to a decrease in labour supply from specific groups, limiting access to a broader, more diverse workforce ✋🚷
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,
how does the level of government intervention affect the demand for labour
- Imposing a minimum wage can lead to higher labor costs for employers. While this aims to improve living standards for workers, it can also result in reduced demand for labor, particularly for low-skilled positions. Employers facing higher wage bills may reduce hiring, cut hours, or automate tasks to manage costs.
- Payroll taxes increase the cost of employing workers. Higher payroll taxes can discourage firms from hiring, leading to a decrease in labor demand
- government subsidies or tax credits for hiring can stimulate labor demand. Programs that offer financial incentives for hiring certain groups, such as veterans, young workers, or long-term unemployed individuals, can encourage firms to increase their workforce.
- Governments can directly increase labor demand by hiring workers in the public sector. This can be particularly effective during economic downturns when private sector demand is weak. For example, New Deal programs in the United States during the Great Depression involved large-scale public works projects that created jobs and boosted labor demand.
- Investment in infrastructure projects, such as building roads, bridges, schools, and hospitals, can create significant labor demand in construction and related industries. These projects not only create immediate employment opportunities but also have long-term benefits by improving productivity and economic growth.
how can the level of economic activity affect the demand for labour
- When the economy is expanding and GDP is growing, businesses tend to increase their production to meet rising consumer demand. This leads to an increased demand for labor as firms hire more workers to expand their operations and meet higher output levels.
- : During periods of economic expansion, businesses tend to invest in capital goods and infrastructure to expand their capacity and improve efficiency. This investment often requires hiring additional workers to operate new equipment, manage increased production, and support business growth.
- When consumer confidence is high, individuals are more likely to spend money on goods and services, stimulating demand across various industries. This increased consumer spending drives businesses to expand production, thereby increasing the demand for labor to meet growing consumer demand.
microeconomic impacts of an increase in the national minimum wage
Higher Wages → Increased Disposable Income → Higher Consumer Spending → Business Growth
Workers earning higher wages have more disposable income, allowing them to spend more on goods and services.
This increased demand can boost sales and revenue for businesses, particularly in consumer-facing industries like retail and food services.
Firms experiencing higher demand may expand production or hire more workers, offsetting some negative employment effects..
Incentivizing Productivity → Greater Worker Motivation → Improved Efficiency → Higher Firm Profitability
A higher minimum wage can encourage workers to be more productive, as they feel more valued and motivated.
This may lead to lower absenteeism, better job performance, and higher efficiency, improving overall business productivity.
Firms might also invest in training and technology to increase output per worker, making the higher wage more sustainable.
In the long run, this can contribute to higher firm profitability and competitiveness, particularly for businesses that successfully adapt to the wage increase.
Higher Wages → Increased Labor Market Participation → More Job Seekers → Potential for Structural Unemployment
A higher minimum wage makes low-paid jobs more attractive, encouraging more people to enter the labor market (e.g., students, part-time workers).
However, if firms cannot afford to hire more workers, it could create excess labor supply, leading to higher unemployment among certain groups.
Employers may become more selective, favoring more experienced workers over young or low-skilled applicants.
This can worsen structural unemployment if some workers struggle to meet new skill requirements.
Higher Wage Costs → Substitution of Capital for Labor → Increased Automation → Long-Term Job Losses
Firms facing higher labor costs may choose to replace workers with automation, especially in sectors like retail (self-checkouts) and fast food (robotic kitchens).
Over time, increased capital investment in technology may lead to fewer low-skilled job opportunities.
While this improves long-run productivity, it could displace workers who lack the skills to transition into more complex roles.
This might widen wage inequality, as low-skilled workers lose jobs while high-skilled workers benefit from technological advancements.
what is a trade union
an organised group of employees who work together to represent and protect the rights of workers, usually by collective bargaining techniques
key roles of trade unions
- improving the real wages of employees
- improving working conditions
- preventing exploitation
- protection of pension rights
- protection against unfair dismissal
what is trade union density
the proportion of workers in a particular workforce or labour market who are members of a trade union
how is trade density important
- the higher the trade union density, the higher the level of disruption that could be caused by a strike as there is higher bargaining power
trade union figures in uk
in 1999, 237 unions
in 2023, 124 unions
what is the marginal revenue product (MRPL)
the extra revenue generated when an additional worker is hired
