Theme 3 - Labour markets Flashcards
what is elasticity of labour supply
the responsiveness of labour supplied given a change in the wage rate
how does the nature of skills required in the job affect the elasticity supply of labour
🧠 Highly Skilled Jobs → Inelastic Supply of Labour
🔗 Jobs requiring high-level qualifications (e.g. doctors, engineers, pilots) need years of education and training ➡️
🔗 The long time lag makes it difficult for workers to enter the profession quickly, even if wages rise ➡️
🔗 Therefore, the supply of labour is price inelastic—a wage increase won’t immediately increase labour supply ➡️
🔗 This can cause persistent labour shortages in skilled sectors despite higher pay 📉👩⚕️
🧰 Low-Skill Jobs → Elastic Supply of Labour
🔗 Jobs that require basic or minimal skills (e.g. retail, hospitality, warehouse work) have lower entry barriers ➡️
🔗 Many workers can be quickly trained or already possess the required skills, so they can switch jobs easily ➡️
🔗 This makes the labour supply more responsive to wage changes, i.e. more elastic ➡️
🔗 Firms in these sectors may find it easier to hire when wages rise 🛍️
🕰️ Transferable Skills → More Elastic Supply
🔗 If the skills required are general and transferable across industries (like communication or IT literacy)
🔗 Workers from other sectors can easily switch into these jobs without significant retraining
🔗 This increases the responsiveness of labour supply to wage changes
🔗 Making supply of labour more wage elastic 🧑💻➡️🧑🏫
🧱 Specialist or Niche Skills → Inelastic Supply
🔗 Some jobs require rare or specialised knowledge, e.g. nuclear engineers, patent lawyers
🔗 Very few workers are qualified, and training pipelines may be limited or expensive
🔗 Even large wage increases cannot quickly increase the number of suitable applicants
🔗 Resulting in a highly inelastic supply of labour in the short to medium term 🧬
how does the length of training affect the elasticity of supply of labour
⏳ Long Training Period → Inelastic Supply of Labour
🔗 Jobs like doctors, architects, or airline pilots require many years of education and training
🔗 Even if wages rise, new workers can’t enter these jobs quickly due to long qualification times
🔗 This means the supply of labour responds slowly to changes in wage levels
🔗 As a result, the supply of labour is wage inelastic, especially in the short run 📉
🧪 Professional Licensing Adds Time
🔗 Some careers also require passing professional exams or licensing (e.g. law, accounting, medicine)
🔗 These extra steps create additional barriers to entry for new workers
🔗 The longer and stricter the process, the slower the labour market can react to wage signals
🔗 This makes labour supply even more inelastic 📋
🧑🏫 Short Training Period → Elastic Supply of Labour
🔗 Jobs that need little to no formal training (like shop assistants or delivery drivers) can be entered quickly
🔗 A small rise in wages may attract many new workers, even from other sectors
🔗 Since new employees can be trained in a matter of days or weeks, supply can adjust rapidly
🔗 This makes the labour supply more elastic, especially in low-skill sectors 📈
🔁 Retraining Time Affects Responsiveness
🔗 Even mid-skill jobs (like electricians or care workers) require some retraining time
🔗 If retraining is short and affordable, labour supply will be more responsive to wage changes
🔗 But if retraining is long, expensive or unavailable, fewer people will switch jobs
🔗 This reduces the elasticity of labour supply in those fields 🧰
how does vocation affect the elasticity of supply of labour
❤️ Strong Vocational Motivation → Inelastic Supply of Labour
🔗 Jobs like teaching, nursing, or charity work often attract people with a strong sense of purpose or calling
🔗 These workers may stay in the job even if wages fall or don’t rise significantly
🔗 Their non-monetary motivation reduces their sensitivity to pay changes
🔗 This makes the supply of labour relatively inelastic 📉
💸 Low Responsiveness to Wage Incentives
🔗 Because vocational workers are driven by job satisfaction, social impact, or moral duty
🔗 They are less likely to leave or enter the profession purely due to changes in wage levels
🔗 Even if pay improves, it might not attract large numbers of new workers without the same motivation
🔗 Therefore, wage changes have a limited impact on the labour supply → inelastic 📊
🧑⚕️ High Retention Despite Poor Pay
🔗 Many vocational jobs are known for lower pay and higher emotional demands (e.g. NHS nurses, care workers)
🔗 Yet workers often remain committed, leading to lower turnover and stable labour supply
🔗 This reduces the responsiveness of labour supply to higher wages elsewhere
🔗 Again, this results in a wage inelastic supply of labour 🧍♀️🧍♂️
🌱 Limits Pool of Potential Workers
🔗 Vocation-driven roles may only appeal to a small segment of the labour market
🔗 If few people are willing to take on emotionally taxing or mission-led jobs, the supply is limited
🔗 So even large wage rises may not increase supply much, as it’s the nature of the job, not pay, that matters
🔗 This restricts elasticity and keeps supply price inelastic 🧠
how does time affect the elasticity of labour supply
⏱️ Short Run → Inelastic Supply of Labour
🔗 In the short run, people can’t easily change careers, gain qualifications, or relocate for jobs
🔗 Even if wages rise, workers can’t respond quickly due to commitments or lack of training
🔗 As a result, the supply of labour stays fairly fixed in the short term
🔗 This makes the labour supply wage inelastic in the short run 📉
📆 Long Run → More Elastic Supply of Labour
🔗 Over the long run, workers have time to acquire skills, retrain, or move location for better-paying jobs
🔗 This means they are more able to respond to wage changes
🔗 Firms offering higher wages will attract more workers, even from different sectors
🔗 So, labour supply becomes more elastic in the long term 📈
📚 Time Allows for Education and Training
🔗 If a job requires specialised skills, workers need time to complete courses or qualifications
🔗 These things can’t happen overnight, but are possible in the long run
🔗 As more workers qualify, the labour supply increases
🔗 So over time, the elasticity of supply improves, especially for skilled jobs 🎓
🚚 Time to Relocate or Adjust Lifestyle
🔗 People might be willing to move to a new city or region for higher wages
🔗 But relocation takes time due to housing, family, or financial issues
🔗 In the long run, these barriers are easier to overcome
🔗 This makes labour supply more responsive and elastic over time 🌍
characteristics of a perfectly competitive labour market
- 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
why do wage differentials exist
🎓 Differences in Skill Levels
🔗 Higher-skilled workers (e.g. surgeons, engineers) have rare and valuable expertise
🔗 These jobs have lower supply due to long training periods and high entry barriers
🔗 Employers are willing to pay more to attract and retain such workers
🔗 This leads to higher wages compared to low-skilled roles with high labour supply 💰
🧑🏭 Differences in Working Conditions
🔗 Jobs that involve danger, stress, or unsociable hours (e.g. miners, offshore workers) are less desirable
🔗 Fewer people are willing to do them, so the labour supply is limited
🔗 Employers offer higher wages as a financial incentive to attract workers
🔗 This explains compensating wage differentials ☢️⛏️
🕒 Differences in Labour Market Power
🔗 Workers in strong trade unions or monopsonistic markets can negotiate better pay
🔗 Similarly, some employers have more market power and can suppress wages
🔗 This causes wage differences between equally skilled workers in different sectors or regions
🔗 Resulting in inequitable wage differentials due to power imbalances ⚖️
🧬 Differences in Productivity
🔗 Some workers are more productive due to experience, talent, or better tools
🔗 Employers value higher output, so they’re willing to pay these workers more
🔗 More productive sectors (like tech or finance) also tend to pay more
🔗 So wage differentials reflect differences in marginal productivity ⚙️
🌍 Regional and Industry Differences
🔗 Cost of living and economic activity vary by region (e.g. London vs Wales)
🔗 Some industries (like investment banking) generate more revenue per worker
🔗 These differences affect the willingness and ability of firms to pay high wages
🔗 Leading to geographical and sectoral wage differentials 🏙️
🚪 Discrimination and Social Factors
🔗 Gender, ethnic, or age discrimination may cause unjustified pay gaps
🔗 Even with equal skills and experience, some groups may be paid less
🔗 This skews wage distribution and limits fair access to higher-paying jobs
🔗 Leading to discriminatory wage differentials 👩🏽💼
another word for labour productivity
MRP
what is a monospony
a single dominant buyer of labour in a given profession
- they reduce wages and reduce quantity of labour
examples of monopsonies
- government is a monpsony of nursing, teaching
- supermarkets with farmers
features of monopsonies
- wage makers, they set wages
- ## will maximise revenue made from workers by hiring up to where MRP = MCl
why dont monopsonies employ more workers
💷 They Have to Raise Wages for All Workers
🔗 In a monopsony, hiring one extra worker means paying a higher wage to all existing workers
🔗 This makes the marginal cost of labour (MCL) rise faster than the wage rate itself
🔗 So, employing more workers becomes increasingly expensive per unit of labour
🔗 To minimise costs, the firm chooses to employ fewer workers than in a competitive market 💸
📊 Profit Maximisation at MC = MRP
🔗 A monopsony hires workers up to the point where MCL = MRP (Marginal Revenue Product)
🔗 Since MCL > wage, the employment level is lower than the socially efficient outcome
🔗 Even if they could hire more workers at the same wage, doing so would cut into profits
🔗 So, they restrict employment to maintain a higher profit margin 📈
🧑🤝🧑 Lack of Competitive Pressure
🔗 In competitive labour markets, firms must offer higher wages to attract workers
🔗 But monopsonies often face little or no competition for workers in the local area
🔗 This reduces the incentive to offer better pay or hire more staff
🔗 Result: low wages and lower employment than socially optimal 🤝
🧱 Barriers to Entry and Worker Mobility
🔗 Monopsonies often operate in areas where workers have limited alternatives (e.g. rural towns)
🔗 Since workers can’t easily move away or switch industries, the firm can dominate hiring
🔗 The monopsony takes advantage of this by keeping wages low and hiring fewer people
🔗 This leads to labour market inefficiency and underemployment 🚧
why does supply = AC on a monopsony diagram
- because it shows the wage rate necessary to attract each additional worker, which is the average cost of hiring labo
average cost of labour equation
total cost of labour/quantity of labour
what is a trade union
an organisation of workers who bargain for higher wages and better working conditions
- a monopoly of labour
- 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,
advantages of trade unions
💸 Higher Wages for Workers
🔗 Trade unions bargain collectively on behalf of many workers
🔗 This gives them more negotiating power than individuals would have
🔗 Employers may offer higher wages to avoid strikes or maintain productivity
🔗 Result: Workers enjoy better pay and job satisfaction 💰
🧑⚖️ Improved Working Conditions
🔗 Unions campaign for safer, fairer, and more humane working conditions
🔗 This can include reasonable hours, safety regulations, and breaks
🔗 Firms improve conditions to avoid legal issues or industrial action
🔗 Leads to better health, wellbeing, and morale in the workplace 🛠️
🧑🏫 Training and Skill Development
🔗 Some unions help workers access education, training, and upskilling
🔗 This improves workers’ productivity and employability over time
🔗 Employers benefit from a more skilled workforce
🔗 Boosts both wages and long-run economic growth 📈
🛡️ Protection Against Exploitation
🔗 Unions represent workers in disputes over unfair dismissal, discrimination, or unsafe practices
🔗 This helps protect vulnerable employees who may not have legal knowledge or confidence
🔗 Employers are encouraged to follow rules and treat staff fairly
🔗 Promotes justice and equality in the labour market ⚖️
📣 Voice in Decision-Making
🔗 Unions act as a channel of communication between employees and management
🔗 Workers’ concerns are more likely to be heard and addressed
🔗 This can reduce conflict and improve trust and cooperation in the workplace
🔗 Encourages long-term stability and productivity 🧩
disadvantages of trade unions
⚔️ Risk of Industrial Action (Strikes)
🔗 Unions may call for strikes or go-slows during disputes, disrupting services
🔗 This can lead to economic losses and inconvenience to the public
🔗 For example, during the 2023 NHS nurses’ strikes, patients faced cancelled operations and delays
🔗 Strikes can damage the reputation of industries and reduce output ❌🏥
💷 Increased Labour Costs for Firms
🔗 Unions often push for higher wages and better benefits
🔗 This can increase a firm’s variable costs and reduce profits
🔗 For example, Royal Mail faced union demands for pay rises during inflation, worsening financial strain
🔗 Firms may respond by cutting jobs, automating, or relocating 💸📉
🧱 Reduced Flexibility in the Labour Market
🔗 Strong unions may resist changes to contracts, hours, or job roles
🔗 This reduces a firm’s ability to respond quickly to market changes
🔗 In the London Underground, union resistance delayed changes to night tube working hours
🔗 It can limit innovation and slow modernisation efforts 🐌
🧑🤝🧑 Wage-Push Inflation
🔗 If unions are too powerful, repeated wage increases may raise overall production costs
🔗 Firms pass these costs onto consumers through higher prices
🔗 This occurred in the 1970s UK economy, where strong union activity contributed to inflation
🔗 Leads to less competitive exports and reduced purchasing power 📈🌍
⚖️ Unfair Power Dynamics in Public Sector
🔗 Unions in the public sector (e.g. teachers or junior doctors) may have more leverage due to essential service status
🔗 The government may feel pressured to concede even when budgets are tight
🔗 Taxpayers bear the cost of settling demands rather than investing elsewhere
🔗 This creates inefficiency and fiscal pressure 💼🧾
how do trade unions help in a monopsony market
💷 Raising Wages Above Monopsony Exploitation
🔗 In a monopsony (e.g. a dominant employer like Amazon in a rural area), firms set low wages due to limited competition for labour
🔗 Trade unions can bargain collectively, giving workers greater negotiating power
🔗 This can raise wages closer to the worker’s marginal revenue product (MRP)
🔗 Helps correct wage exploitation, reducing the gap between what workers are paid and what they’re worth 💰
🧑🤝🧑 Increasing Employment to Socially Optimal Levels
🔗 Monopsonists hire fewer workers because marginal cost of labour (MCL) > wage rate
🔗 A union-set wage can flatten the MCL curve, making it constant up to a certain employment level
🔗 This encourages the firm to hire more workers, moving employment closer to a competitive equilibrium
🔗 Leads to greater labour market efficiency and output 📊
🛡️ Protecting Workers from Abuse or Exploitation
🔗 In monopsony markets, workers may fear dismissal or unfair treatment with no alternative employer nearby
🔗 Trade unions provide legal support, grievance handling, and job security
🔗 This reduces the employer’s bargaining power advantage
🔗 Encourages fairer treatment and reduces worker exploitation 🧾⚖️
📣 Giving Workers a Voice
🔗 Monopsony firms may make unilateral decisions about pay or working conditions
🔗 Trade unions represent worker interests in negotiations and policy-making
🔗 This creates a more balanced relationship between employer and employee
🔗 Can improve morale, productivity, and long-run trust within the workplace 🗣️🤝
how does the strength of trade unions affect trade union power
👥 Membership Size and Density
🔗 A stronger union typically has more members and higher density in a sector
🔗 This gives the union more bargaining power, as employers cannot easily ignore a large, unified group
🔗 With widespread support, threats of strikes or collective action become more credible
🔗 Leads to higher wages or better conditions being secured for more workers 📈
⚖️ Legal Rights and Government Support
🔗 The strength of a union is partly determined by the legal framework it operates in
🔗 If laws support collective bargaining and strike action (e.g. some Nordic countries), unions have greater influence
🔗 In contrast, in the UK post-1980s, anti-union legislation weakened union power
🔗 Stronger legal backing allows unions to negotiate more effectively 🧾
🧱 Centralisation and Organisation
🔗 Strong unions tend to be highly organised and centralised, with clear leadership and structure
🔗 This allows for coordinated actions, such as national strikes or industry-wide negotiations
🔗 It increases the union’s ability to influence policy and employer decisions
🔗 Results in stronger protections and more consistent gains for members 🧠
🔁 Economic Context and Employer Dependence
🔗 Union strength is also influenced by economic conditions and industry type
🔗 In essential services (e.g. healthcare, transport), unions are harder to replace, giving them more power
🔗 But in fragmented or gig-based sectors (like Uber drivers), weak structure means limited power
🔗 Stronger unions emerge where employers rely heavily on skilled, unionised labour 🚉
what is trade union density
the proportion of the workforce in a given profession that are part of a given trade union
what is a union mark
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
real world evidence that proves that the power of trade unions are limited
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
what are closed shop trade unions
- 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.
why has the union density in the UK decreased?
🏭 Structural Changes in the Economy
🔗 The UK economy has shifted from manufacturing and heavy industry (where unions were strong)
🔗 Toward a service-based economy (like retail, hospitality, and IT), where union presence is traditionally weaker
🔗 Service sector jobs are often part-time, temporary, or individualised, making union organisation harder
🔗 As a result, union density has fallen because fewer workers are in traditionally unionised sectors 🏢
✂️ Government Legislation and Policies
🔗 From the 1980s onwards, UK governments (especially under Thatcher) introduced laws restricting union power
🔗 Policies like making strike action harder, requiring secret ballots, and allowing fines for illegal strikes weakened unions
🔗 These restrictions made unions less effective in protecting workers’ rights, reducing their appeal
🔗 As union power diminished, fewer workers saw the benefits of joining, lowering union density
🔄 Changing Nature of Employment Contracts
🔗 The rise of zero-hour contracts, freelance work, and gig economy jobs has fragmented the workforce
🔗 Workers on flexible contracts often have less job security but also less collective identity with coworkers
🔗 It’s harder for unions to organise and represent individuals working under such isolated conditions
🔗 This trend has weakened traditional union structures, leading to a fall in membership
🧠 Changing Worker Attitudes
🔗 Younger generations of workers often see unions as less relevant to modern working life
🔗 Many workers focus more on individual career development rather than collective bargaining
🔗 In some sectors (like tech or finance), workers feel empowered individually and don’t see the need for union protection
🔗 This shift in workplace culture has contributed to a decline in union density over time
💷 Employer Resistance
🔗 Many employers now actively discourage unionisation, offering direct negotiation, individual bonuses, or workplace councils instead
🔗 By promoting alternative forms of employee representation, firms reduce workers’ perceived need for unions
🔗 Anti-union tactics and promotion of a non-unionised culture weaken union influence
🔗 As a result, fewer workers are encouraged to join unions, causing a drop in union density
