Theme 3 - Labour markets

Question 1

what is elasticity of labour supply

Answer 1

the responsiveness of labour supplied given a change in the wage rate

Question 2

how does the nature of skills required in the job affect the elasticity supply of labour

Answer 2

• Jobs requiring highly specialized skills have a limited pool of qualified workers due to the advanced education, training, or experience needed
• The time and effort required to acquire these skills further restrict the number of workers who can enter the labor market quickly.
• The supply of labor for such jobs is inelastic because a change in wages does not easily attract more workers in the short term due to the barriers to acquiring the necessary skills

Question 3

how does the length of training affect the elasticity of supply of labour

Answer 3

Jobs that require only a short training period allow workers to enter the labor market quickly and easily
- Many individuals can rapidly acquire the necessary skills, increasing the potential labor pool
- The supply of labor is highly responsive to changes in wages because workers can quickly start working or switch jobs if wages increase or decrease

Question 4

how does vocation affect the elasticity of supply of labour

Answer 4

• Jobs with a strong vocational aspect, such as teaching, nursing, or religious vocations, attract individuals driven by passion or a sense of duty rather than purely financial incentives
• Workers in vocational jobs often exhibit high levels of commitment and dedication, making them less responsive to wage changes
• The labor supply for vocational jobs is relatively inelastic because wage increases or decreases have less influence on the decision to enter or stay in the profession compared to non-vocational jobs
• Jobs with a weak vocational aspect are more likely to attract workers primarily motivated by financial incentives rather than passion or calling
• Workers in these jobs are more responsive to changes in wages, with significant shifts in labor supply as wages rise or fall.
• The labor supply for these jobs is elastic because workers can be easily attracted or deterred by wage changes

Question 5

how does time affect the elasticity of labour supply

Answer 5

• In the short run, workers have limited ability to respond to changes in wages due to existing commitments and constraints, such as ongoing contracts, familial responsibilities, or current educational pursuits
• Workers might not be able to move to different locations or switch industries quickly due to the short time frame
• As a result, the labor supply is relatively inelastic in the short run because workers cannot easily adjust their work hours or change jobs in response to wage changes
• : Over the long run, workers have more time to adjust to wage changes. They can pursue additional education or training, relocate, and switch careers or industries
• With time, more individuals can enter the labor market or exit based on wage trends, increasing their responsiveness to wage changes.
• ## Therefore, the labor supply becomes more elastic in the long run as workers have the ability to make significant adjustments in response to changes in wages

Question 6

characteristics of a perfectly competitive labour market

Answer 6

• there are many potential workers and employers
• labour is homogenous, there is no difference in skills and qualifications between workers
• there is perfect information for both workers and firms
• firms are wage takers, they have no control over wages that they can over to their workers
• there are no barriers to entry/exit

Question 7

why do wage differentials exist

Answer 7

• labour is not homogenous
  
  • workers are different and will therefore
    have different MRPs
  • not every worker has the ability to take every job, as there are different supplies of labour
  • discrimination
• non monetary considerations
  
  • eg - flexibility of working hours, potential for promotion, number of holidays
• labour is not perfectly mobile
  
  • occupational, geographical immobility
  • imperfect information
• the presence of trade unions who bargain for higher wages
• monopsonies and wage setting ability/power

Question 8

another word for labour productivity

Answer 8

MRP

Question 9

what is a monospony

Answer 9

a single dominant buyer of labour in a given profession
- they reduce wages and reduce quantity of labour

Question 10

examples of monopsonies

Answer 10

• government is a monpsony of nursing, teaching
• supermarkets with farmers

Question 11

features of monopsonies

Answer 11

• wage makers, they set wages
• ## will maximise revenue made from workers by hiring up to where MRP = MCl

Question 12

why dont monopsonies employ more workers

Answer 12

• they would have to increase wages to do so

Question 13

why does supply = AC on a monopsony diagram

Answer 13

• because it shows the wage rate necessary to attract each additional worker, which is the average cost of hiring labo

Question 14

average cost of labour equation

Answer 14

total cost of labour/quantity of labour

Question 15

what is a trade union

Answer 15

an organisation of workers who bargain for higher wages and better working conditions
- a monopoly of labour

Question 16

advantages of trade unions

Answer 16

• increases wages of workers
• Unions often negotiate contracts protecting workers from unfair dismissal dismissal, providing greater job security.
• Unions advocate for improved workplace health and safety standards
• Unions negotiate for reasonable working hours, rest breaks, and family-friendly policies
• Unions often provide or advocate for access to training and professional development opportunities, helping workers to enhance their skills and career prospects.
• Unions give workers a collective voice, allowing them to participate in decision-making processes
• unions help reduce employee turnover,

Question 17

disadvantages of trade unions

Answer 17

• unemployment

Question 18

how do trade unions help in a monopsony market

Answer 18

• Unions can negotiate for wages that are closer to the competitive equilibrium level, reducing the wage suppression
• By securing better wages and working conditions, unions make the workplace more attractive, potentially increasing the labor supply available to the monopsonist

Question 19

how does the strength of trade unions affect trade union power

Answer 19

A union with a large number of members has greater bargaining power because it represents a significant portion of the workforce. This makes it more difficult for employers to ignore the union’s demands.

• : A larger membership base enhances the union’s ability to organize collective actions such as strikes or protests, which can pressure employers to meet union demands.

Question 20

what is trade union density

Answer 20

the proportion of the workforce in a given profession that are part of a given trade union

Question 21

what is a union mark

Answer 21

the difference between the wages that people in a trade union are getting vs the ones who arent (in a similar profession). the bigger the difference, the bigger the success of the trade union

Question 22

real world evidence that proves that the power of trade unions are limited

Answer 22

legislation from the 1970s:
- “closed shop” trade unions being banned, reduces power of individual trade unions
- for strikes, ballots have to be done in secret, and they can only take place if at least 70% of the union agree to strike
- you’re only allowed to strike against your own employer, this reduces the power of the strike

Question 23

what are closed shop trade unions

Answer 23

• In a closed shop arrangement, employers agree to hire only union members, and employees must remain union members to continue working at the company.
• The union has significant control over the hiring process, as non-union members cannot be employed.

Question 24

why has the union density in the UK decreased?

Answer 24

• the structure of the UK economy has been restructured, moved from manufacturing/heavy industry jobs to service sector jobs. and in service sector industries, there are many employers, people will work for different employers, so organising union events may be hard
• part time work in the UK has become more prevalent,

Question 25

why do men get paid more than women

Answer 25

childbearing - due to the most of the burden being on the woman during pregnancy/ raising children, eg maternity leave etc, women take time off. this is time where skills are not being developed, key skills may be lost, MRP may reduce and this could reduce their ability to earn more in the future

• the ages that women tend to have children (late 20s/early 30s) is the age where people boost their careers, leaving during this time may limit wage potential
• in developing countries, some girls do not have the same oppurtunities as males to be educated
• more women work in low paid occupations, eg service sector jobs where demand isnt high and the skills required for the job arent high
• lack of women in trade unions
• discrimination - employers may just favour having male employers over female despite all the legislation making this illegal

Question 26

why do footballers get paid more than teachers

Answer 26

• professional footballers have a large MRP. they generate a lot of revenue from various sources, eg ticket sales, merchandise
• there’s a low supply of highly skilled footballers, but very high demand for them. high demand would drive wages up
  
  • Elite footballers possess unique and rare talents that are in high demand worldwide. The entertainment value and competitive nature of sports drive this demand, leading to lucrative contracts and endorsement deals
• there is an abundant supply of teachers compared to their demand
• supply of good footballers is also very supply inelastic
• in teaching, there is a monopsonies employer(govt), the state has wage setting powers and will keep wages as low as possible to prevent inflation
• limited football clubs, no monopsony
• vocational aspect to teaching, ev holidays and good pensions, cause a negative wage differential
• there’s a lower impact of trade unions, as a lot of teachers are reluctant to strike and bargain for higher wages due to the impact on students
• all footballers have different skills, each employer would be willing to pay high amounts for these footballers because they are different
• Football is a global sport with a massive following. Media companies and advertisers are willing to pay substantial amounts for broadcasting rights and advertising opportunities, driving up the earnings of footballers
• Teaching is primarily a localized service, with teachers working within specific schools or districts. The financial contributions from a global audience are absent in education.

Question 27

why do Londoners get paid more than northerners

Answer 27

• restructuring of the UK economy from the 1970s - moved away from manufacturing jobs to more service jobs like finance, and a lot of financial service jobs are based in london, whilst the heavy industry jobs are based in the North, so MRPs of workers in the north may be lower as demand is lower
• negative multiplier effect - all the workers who may be unemployed in the north, who have previously worked heavy manufacturing jobs, may not have the wage potential to spend a large proportion in their regional economies, therefore the industries that are dependent on their spending, may see a fall in demand for their products. and since labour is a derived demand, workers in that industry may become redundant
• negative accelerator effect - firms may not be willing to invest if they see that the growth rate of that regional economy is falling. this reduces wage growth potential, dynamic efficiency
• occupational and geographical immobility - workers in the north dont have the skills or qualifications to join occupations in the south, and they may not be able to afford to move to London, where cost of living is very high
• The cost of living in London is significantly higher than in Northern regions. This includes housing, transportation, food, and other daily expenses. To compensate for these higher costs, employers in London often offer higher wages
• London is a global financial and business hub, home to many multinational corporations, financial institutions, and high-tech industries. The demand for skilled professionals in sectors such as finance, law, technology, and consulting is higher in London, driving up wages.
• Workers in London tend to be more productive due to better infrastructure, access to advanced technology, and higher levels of human capital. Higher productivity often translates into higher wages.
• London’s economy contributes a significant portion of the UK’s GDP, reflecting its high level of economic activity and output, which supports higher wages.
• Employers in London face intense competition for top talent, leading them to offer higher salaries to attract and retain skilled workers.

Question 28

why do some ethnic groups get paid less than others

Answer 28

• Some ethnic minority groups may have lower levels of educational attainment and fewer qualifications due to systemic barriers in access to quality education, leading to lower MRP.
  - Historical and structural inequalities can limit access to career-building opportunities and experiences, reducing the MRP of minority workers.
• Some immigrant and non-native speaking workers may struggle with language proficiency, which can hinder their ability to perform certain tasks, communicate effectively, and advance in the workplace.
  - Language barriers can restrict access to higher-paying jobs that require strong communication skills, limiting minorities to lower-paid positions
• Ethnic minority workers are often overrepresented in low-paid, low-skill jobs such as hospitality, agriculture, and manual labor. These industries typically offer lower wages and fewer opportunities for advancement.
  - Structural barriers and discriminatory practices can prevent minority workers from moving into higher-paid professions and positions.
• Minority groups often live in economically disadvantaged areas with fewer job opportunities, lower-quality schools, and limited access to resources that support career development
  - Jobs available in poorer areas tend to pay less than those in more affluent regions, contributing to overall lower wages for residents.
• Minority groups may prefer to stay close to family and established communities, even if it means forgoing higher wages available in other areas.
  - The cultural and social support provided by living in a familiar community can outweigh the financial benefits of relocating to higher-wage regions
• Discrimination in hiring practices can prevent minority workers from obtaining higher-paying jobs. Employers may consciously or unconsciously favor candidates from majority ethnic groups.
  - Even when minority workers are employed in similar roles as their majority counterparts, they may still face wage discrimination, resulting in lower pay for the same work.
  - Discriminatory practices can also limit promotions and career advancement opportunities for minority workers, keeping them in lower-wage positions.