Theme 3: Labour markets Flashcards by Kush Verma 13

Draw a labour market diagram

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Why does the labour diagram look like this? Give 2 reasons

If wages increase = workers will supply more labour and firms will demand less labour
If wages decrease = workers will supply less labour and firms will demand more labour

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In the labour market, what do we call excess supply?

Unemployment

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What is the elasticity of demand for labour tell us?

How responsive demand for labour is to changes in wages

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Draw an elastic labour demand curve

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Draw an inelastic labour demand curve

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What are the 3 factors that contribute to the elasticity of labour demand?

1) Substitutes
2) % of total cost
3) Time

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What are substitutes?

How easy it is to substitute or replace workers when their wages go up

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How does substitutes effect the elasticity of labour demand?

Lots of substitutes = elastic labour demand
Few substitutes = inelastic labour demand

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What is the percentage of total cost?

What % of total cost is made up by workers’ wages

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How does percentage of total cost affect elasticity of labour demand?

Wages are a small % = inelastic labour demand
Wages are a large % = elastic labour demand

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How does time affect elasticity of labour demand?

Short run =. Inelastic labour demand
Long run = elastic labour demand

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Draw an inelastic labour of supply curve

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Draw an elastic labour of supply curve

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What are the 3 factors that affect the elasticity of labour supply?

1) Skills & qualifications
2) Unemployment levels
3) Time

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What are Skills & qualifications?

The level of skill or qualification that is needed to enter a profession

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How does skills & qualification affect the elasticity of labour supply?

Few skills & qualifications = elastic labour supply
Lots of skills & qualifications = inelastic labour supply

What does unemployment look at?

How many people are unemployed in the economy

How does unemployment affect the elasticity of labour supply?

High unemployment rate = elastic labour supply
Low unemployment rate = inelastic labour supply

How does time affect the elasticity of labour supply

Short run = inelastic labour supply
Long run = elastic labour supply

What are the 7 main reasons for the labour market shifts in supply & demand?

1) derived demand
2) productivity
3) capital costs
4) migration
5) income tax & benefits
6) non-pecuniary benefits
7) education & training

What is derived demand?

demand for a factor of production (like labour) that is derived from the demand of another good/service.

How does derived demand affect the shifts in the labour market?

If demand shifts right/left for one factor of production, then another type of good/service related to it will replicate the shift

How does productivity affect the shifts in the labour market?

It can go either way

Increase in productivity -> produce more -> make more profit

But increase in productivity -> produce more -> firms would need fewer workers

How does capital costs affect the shifts in the labour market?

Lower capital costs = leftward shift in demand

What does capital costs describe?

Describes that labour can be substituted to capital

How does migration affect the shifts in the labour market?

Labour supply can increase/decrease depending on where they are migrating to/from

How does income tax & benefits affect the shifts in the labour market?

Benefits: - decreasing benefits -> encourage people into work -> increase labour supply - increasing benenfits -> quit or stay unemployed -> decrease labour supply Income tax: - higher income tax -> reduce take home income -> reduce incentive to work -> decrease labour supply - lower income tax -> increase take home income -> increase incentive to work -> increase labour supply

Can you give some evaluation for changing income tax which may affect labour market supply

Higher income tax: some workers need a certain income -> work more -> increase labour supply Lower income tax: some workers still need a certain income -> work less -> decrease labour supply

What are non-pecuniary benefits?

benefits of a job other than the wage received.

How does non-pecuniary benefits affect the shifts in the labour market?

High non-pecuniary benefits -> increase labour supply Low non-pecuniary benefits -> decrease labour supply

How does education and trainings affect the shifts in the labour market?

More education and training -> increase supply But this can increase productivity so it may vary

What is a minimum wage?

the lowest wage a firm can legally employ a worker for.

Can you give an example of minimum wage?

E.g. for over-25s in the UK, the national minimum wage is £7.50

What is a trade union?

a group of workers who collectively bargain to improve employee welfare.

Can you give an example of a trade union?

E.g. the NUT, the National Union of Teachers, who have previously gone on strikes to bargain for higher pay from the government.

What is maximum wage?

the highest wage a worker can legally be employed for.

Can you give an example of maximum wage?

E.g. Jeremy Corbyn has argued for a maximum wage set at 20x the lowest wage within a company.

What is occupational immobility?

when workers can’t move between different jobs (or occupations) because they lack the skills needed.

What is geographical immobility?

when workers struggle to move between different areas.