TOPIC 4 ECO (chapter 9-11) Flashcards
check the textbook summaries and recheck the info that may be missed.
labour market
individuals seeking employment interact w/ employers who want to obtain most appropriate labour skills for their production process
micromarkets 1 for each individual firm & industry, and 1 for local areas & occupations, each with own labour market outcomes (wage levels, employment opp, conditions)
how do firms demand labour. why?
offer wages
-DERIVED DEMAND for g&s within eco
-consumers demand higher lvls g&s, firms forced to increase lvl output to meet
-mut higher more labour to produce more
ONLY demanded bc needed for firm to produce g&s and make profit
labour demand curve
downward sloping curve
as price of labour (wages) falls, firm will employ more labour
factors that determine how much labour a firm will demand at specific price & how it will respond to eco conditions
- OUTPUT of firm
how does output of firm affect labour demand
bc derived demand, level of output is msot sig influence
-higher sales –> ^ production –> ^ demand for labour
eco conditions affect lvl output (pattern of consumer demand + demand for g&s firm produces)
aggregate demand
total demand for g&s within eco
C, I, G and X
conumption, investment, GVT spending, net exports
hwo does general eco conditions affect output lvl of firm time lag!!!
strong growth, firm likely have higher sales –> need more employees
only few firms benefit from eco downturn and employ more (discount retailer)
always time lag
-tend to operate with excess capcity, dont always fully utilise resources
-hoard labour to avoid training new staff when production picks up
what happens when aggregate demand increases for firm short term
firms satisfy higher demand (short) by using existing labour & capital resources intensively (eg. ask overtime)
what happens when aggregate demand falls for firm
delay making staff redundant hoping conditions improve & avoid costs & risks of finding new staff when eco recovers
-usually retrench workers when facing SUSTAINED deterioration in eco conditions
3 conditions that affect output level of firm
- general eco conditions (aggregate demand)
- conditions in firm’s industry (trends)
- demand for a firm’s products
how do conditions in a firm’s industry affect its level of output?
change in consumer tastes & preferences for g&s –> change allocation of labour betw diff industries (labour is derived demand)
industry’s barriers to entry, lvl regulation/price comp affects demand for albour –> increase in industries w/ ^ demand for their products & decrease for those experiencing lower demand
how does demand for individual firm’s products affect a firm’s level of output
output ultimately determined by effectiveness in selling g&s in marketplace
-quality of products
-reputation & size of firm
-customer service
-marketing efforts
even overall decline in demand in industry, possible for firm to achieve growth in output if increases market share
how does labour productivity affect demand for labour
firm must determine how to organise production
-use labour more intensively/relying heavily on tech & automated processes
-productivity of labour & labour costs compared with other inputs (capital) determine extent firm uses labour in production
labour productivity formula
total output
/
labour input
what does labour productivity depend on?
quality of workforce
-lvl education, skill, health
how efficiently labour can be combined with FOP in production process
-eg investment in tech allows more produced for each hour of labour input
what does higher labour productivity in the short run indicate
fixed no. workers produce more g&s –> output of firm rising w/o firm increasing no. workers
what will the overall effect of an increase in productivity on demand for labour (short) depend on?
- current level of aggregate demand
- cost of other inputs (capital, including foreign operations)
if aggregate demand is rising, how will this affect productivity from demand for labour?
higher demand for g&s
-if rising faster rate than ^ productivity, higher demand > higher production from existing workers
-bus will increase demand for labotu to meet higher lvl of AD
if aggregate demand is unchanged, how will this affect the productivity & the demand for labour (short)
if labour productivity rising, existing workers producing more g&s BUT wont be any higher demand
-bus have EXCESS capacity & won’t need more labour
demand for labour decline
-higher productivity = bus cut on workers & still produce same output as before
if aggregate demand is FALLING, how will this affect productivity & demand for labour
AD falling but labour productivity RISING, demand for labour FALL MORE
-existing workers produce more output, still less demand for output in eco
-if bus maintain profits, lower demand for labour
how will higher labour productivity make labour a more attractive inut to production than the other FOP in LONG RUN
firm may shift towards labour production methods if more productive (capital too exp)
-increase labour demand
if prod labour < improv tech & capital, LD may decline
-new tech improve efficiency of capital investment & create cheaper alt prod methods, allow firms to reduce demand ofr labour while output levels same/increase
how do cost of other inputs affect demand for labour
firms have range of options for combination of labour and CAPITAL (equip)
-if new tech reduces costs, firms use more capital inputs in PP & less labour
-if labour costs fall, firms shift to labour > capital in PP
capital is sub for labour
-changes in price price of capital have similar effecto n demand for labour
when will a firm’s demand for labour be more ELASTIC (responsd more sharply to price changes)
- easy to sub betw labour & capital
- labour costs relatively high prop of total costs
- more diff for firm to pass increased labour costs as higher prices to consumers
labour-on costs
additional costs of employing labour
-sick leave
-holiday pay
-superannuation
ceteris parabus, law of demand (for labour)
employ more labour when cost of labour declines
employ less labour when cost of labour increases
why is interest rate most important in cost of capital?
represents cost of borrowing funds to purchase new capital equip
represents opp cost if firm using own funds to finance capital expenditures
-could be earning returns on funds than investing back into bus operations
what are the factors determining the cost of capital
INTEREST RATES
tax system structure (special tax allowances might encourage greater bus investment)
besides labour & capital, what else may firms consider for its labour demand
shifting some operations overseas (engage w/ overseas contractors to manufacture goods/provide services offshore)
-esp if labour costs lower elsewhere
6 output factors influencing labour demand
- general eco conditions
- conditions in firm’s industry
- demand for indivudal firm
- productivity of labour vs other inputs
- cost of labour vs other inputs
- cost of labour bs cost of foreign labour
human capital
knowledge, skills, training, experience of workers contributing to PP
reflects quality of labour force
main influence on producitvity growth
what 5 factors influence the SUPPLY of labour?
- pay levels
- working conditions
- edu, skills & experience requirements
- mobility of labour
- labour force participation rate
- other factors
how do pay levels affect the supply of labour?
wage/salary paid to employees for labour for firm/industry
-higher pay offered, more ppl prepared to sacrifice leisure time & supply labour
-non-wage/salary incentives can be included in employee’s remuneration package
(superannuation benefits)
how do working conditions affect supply of labour?
attractive working conditions encourage higher supply of labour to workplace
-those offering flexible owrking hrs, opp to work** from home,** generous holiday leave entitlements & positive working environment attracts more labour
some jobs offer opp to travel, training opp & experience, higher lvl job satisfaction
how does education, skills & experience requirements affect supply of labour?
jobs require lvl training/experience or formal qualification/license (HUMAN CAPITAL)
-supply of labour limited by availability of human capital (no. ppl w/ appropriate skilsl for jobs)
-jobs with advanced skills –> labour supply shortages (acquiring skills can take years/sig costs)
-country’s edu & training system & skill-based immigration helps determine supply of skileld workers
hwo does mobility of labour affect supply of labour?
affected by responsiveness to changes in demand for labour in diff areas & industries
** occupations** require workers to relocate to distant locations with fewer educational & entertainment opps will receive lower supply of laobur
-employers in remote locations need to offer higher wages to attract workers
what are the 2 types of labour mobility
occupational & geographical mobility
occupational mobility
ability of labour to move betw diff occupations responding to wage differentials & employment opps
-degree depends on edu & skilsl required for certain occupation & time taken to gain credentials (hard for mechanic to become surgeon)
geographical mobility
ability of labour to move betw diff locations in response to IMPROVED wage differentials & employment opps
2 factors the limit geographical mobility of labour
- COSTS of RELOCATING
-travel, transportation, real estate costs - PERSONAL UPHEAVAL with moving
-breaking familial ties & changing schools
working-age population
no. ppl in eco 14+
labour force/workforce
all employed & unemployed ppl in country at PIT
how does the labour force participation rate affect supply of labour?
some ppl wanna undertake further study, take care of family, concentrate on lesiure acitivites (rely on other forms of income)
trends in LFPR in AUS (men & women as well)
overall risen slowly over past 3 decades
sig changes to male & female participation rates
-male DROPPED CONSIDERABLY
-females continued to increase over past 50 yrs, driven by ^ participation of married women in owrkforce
-gap betw participation rates shrunk over 30%
short term influences on participation rate
STATE OF ECONOMY
PR pro-cyclical
-times of prosperity & eco growth, ppl inclined to seek work to find better job)
-recession, ppl less optimistic abt job prospects, less inclined
long term influences of participation rate
AGEING POPULATION TRENDS & age of retirment
-overall PR will decrease as prop of pop over 65yo increases, majority in retirement
-however retire later, more jobs in less labour-intensive roles
SOCIAL ATTITUDES
-increase participation of women in workforce
-increased childcare support
-lower fertility rates
-increased age women qualify for age pension
INCREASED SCHOOL RETENTION RATES
-growing tendency for young ppl to remain at school longer & seek full-time tertiary education
-join workforce later in life
what are the ‘other factors’ affecting supply of labour?
GVT POLICY decisions/ collective action of those providing labour within industry
-AUS historically filled labour market gaps w/ immigration, policies heavily weighted towards** skilled** migrants
-trade unions eg. Law Society impose standards of edu, continuing training & professional conduct
-restricts supply of labour
GVT limit supply of labour to certain occupations by imposing certain qualification & licence RESTRICTIONS
when is a person calssified as employed
1/+ hrs of work per week
what are the 2 most important aspects of the workforce?
SIZE
-bigger workforce, greater contribution to producnig g&s
QUALITY of labour
-well educated, highly skilled workforce more productive
what 3 factors affect the size & quality of the workforce?
- size of population
- age distribution
- educational patterns
how does population size affect size & quality of workforce?
sets limit to which workforce can grow
-larger population, greater potential workforce
influenced by 1. NATURAL INCREASE 2. NET MIGRATION
natural increase of migration
births > deaths in pop over 1 year
net migration + during strong eco growth
excess of permanent new arrivals to country over permanent departures in 1 yr
strong eco grwoth, labour shortages prompt** gvts** to raise migration quotas, expanding aggregate supply > aggregate demand altho greater demand for housing & public services
aus demographic trend & why
over past few decades AUS’ natural increase DOWNWARD trend
-families have fewer children
-couples marry later age than previous generations
-both spouses in full time work
NET MIGRATION fluctuates considerably, strongly invluenced by level of eco activity
-depressed eco activity & high unemployment, gvt reduces migration to ease pressure on labour market
-main role of growth in AUS population
overall population expected to be slower
how does age distribution affect quality & size of workforce & causes
prop workers in 15-65 age group declining
-exacerbate imbalance and skill shortages
growing no. ppl in retirement
-declining birth rates & increasing life expectancy (higher health & living standards**)
how do education patterns affect size & quaility of the workforce (most imp for quality)
those acquire skills through years of training & studying have higher earnings, around 2x than dropouts
AUS spending on edu > OECD average
-extent of private funding to cover edu costs
overall demand for labour is most heavily influenced by _____ in an economy (lvl of eco activity)
level of eggregate demand
increase in PRODUCTIVITY of labour witll have ____ influence on the demand for labour , accompanied by ____ aggregate demand
positive
rising
change in realtive costs of capital and labour will influence demand for labour but can be overshadowed by
changed in lvl eco activity, of persistent declines in labour productivity & rises in relative cost of labour
-long term incentives for firms to sub labour for capital
labour markets that require high-level skill (medical specialists) more closed than requiring lower level skills. what supply curve does this have?
inelastic
nominal wage
pay received by employees in dollars for contribution to PP, not injusted for inflation
real wage
measure of ACTUAL purchasing power of nominal wages adjusted for effects of inflation
in most years, %^ in nominal wages is less/greater than percentage increase in general price level
greater than > (real wages generally rising)
WORKPLACE/industrial relations system
laws, institutions & processes established to manage relationship betw employers & ees.
structure of IRS determines process of wage determination & conflict resolution in AUS labour market
-setsrules how LM operates
relationship between employees & ers is known as
workplace/industrial relations
AUS GVT historically played important role in WAGE DETERMINATION through
independent industrial courts & tribunals
4 LM institutions TEIG
trade unions
employer associations
industrial tribunals
GVT
trade union
association of workers aims to advance interests of its members by improving WAGES and WORKING CONDITIONS
main role of unions
represent members interests by negotiating wage increases
BUT ALSO
present employees interest in issues in workplace eg. safety and organisational changes as company restructures
4 types of unions O(IF)G
Occupational
industry-based
firm-based
general
occupational unions
draw members from workers who posess certain skill set regardless of industry/firm they work
industry based unions
cover workers in particular industry REGARDLESS of type of work they do
firm based unions
only represent workers of 1 SPECIFIC ENTERPRISE
-very RARE
general unions
cover WHOLE RANGE of workers with many DIFF SKILLS across VARIOUS industries
AUS Workers Union
ACTU 1927
Australian Council of Trade Unions
national trade union voice
roles of ACTU
- coordinate wage claims & industrial action across AUS
- conducting CAMPAIGNS and RESEARCH
- provide input to GVT POLICIES
AUS experienced large rise/fall in union membership
fall
highest lvl union membership vs lowest
education sector vs agriculture
union membership among older workers is much lower/higher than younger workers
higher
WIN factors that contributed to decline in union membership
- changes in WAGE DETERMINATION
- changes within INDUSTRIES
- changes in NATURE of EMPLOYMENT
how do changes to wage determination decline union membership
movement away from centralised (GVT) wage determination to ENTERPRISE BARGAINING (employees vs ers) reduced influence of unions over wage outcomes
how do changes within industries decline union membership
industries experienced greatest growht recetnly dont have history of high union membership
-bus & domestic services, retail trade sectors
sectors with traditionally high union membership
-manufacturing & GVT owned business SHRUNK as share of total EMPLOYMENT
how do changes in nature of employment decline union membership
UM always highest among permanent full-time workers, who declined recent decades while casual & part time grown
casualisation of owrk
EBS role of unions
- represent employee interests
- exercise bargaining power in negotiations with employers
- restrict supply of labour
how do unions represent employee interests?
broader role in influencing labour market outcomes, provide collective voice for workers when management implements organisational changes
-issues affecting workers
better access to training & edu
-improve safety standards in workplace
-easier to combine work & family responsibilities
how do unions exercise their bargaining power in negotiations with employers & what is the trade off/OC
employees act alone, unlikely substantial influence on employer bc limited bargaining power, easy to replace
-join together (strike), sig power diff replace entire workforce
-negotiate higher wage rate than market forces determine
BUT if strong unions convince eployers to pay higher than equilibrium wage rate, quantity labour supplied > quantity of labour demanded
-employment < og equilibrium wuantity
-excessive wage demands in 1 industry may contribute to higher lvl unemployment by pricing labour out of a job
-may face trade-off when unions bargain with employers for wage adjustments to maintain current lvls employment
how do unions restrict the supply of labour
unions w/ very high membership lvls can restrict SOL to firm/industry on ONGOING basis
-increase wage rate
-restrict hiring employees –> lower supply labour + higher pay
employer associations
although larger employers have greater financial resources than unions, employers are generally not as well coordinated. why?
already have greater bargaining power
many instances in direct competition w/ each other
larger employers deal with unions directly than undergoing employer association
employer associations
typically operate as sector-based/general business lobby groups representing business interests on eco policy issues
-taxation
-regulations
-industrial relations
help employers manage relationships with employees & unions
3 most important employer associations at federal level AUS
- business council of australia BCA
- Australian industry group AIG
- Australian chamber of commerce and industry
ACCI
provide national voice for employers
-debate over labour market policy changes
employer associations main focus
influencing industry/economy-wide changes
eg. FWC’s annual min wage decision
how do employer associations benefit both employers & ees
lobbying the GVT for protection from:
-foreign competition
-tax exemptions
-industry assistance
to secure larger share of domestic markets for AUS producers
4 main roles employer organisations play in the labour market
- sometimes negotiate wage agreements cover large no. members
-but multi-employer wage negotiations limited under Fair Work Act - provide ADVICE, TRAINING, DIRECT ASSISTANCE to employers
-
LOBBYING GVT for changes to GVT POLICIES
-esp industrial relations (FWC for min. wage change)
-skills training - represent employers’ INTERESTS in hearings in industrial tribunals
FWC fair work commission
GVT national industrial relations tribunal
sets min wage, approves EAs, resolves industrial disputes, unfair dismissal, set awards
* established by Fair Work Act 2009
how has AUS’ workplace relations framework evolved over past 3 0 years?
highly CENTRALISED WAGE DETERMINATION SYSTEM to one allowing more room for wage levels & work arrangements negotiated at individual firm level
allowed wages & working conditions take account specific characteristics of workplace
what is AUS’ industrial relations system governed by?
Fair Work Act 2009
what 3 main streams in the labour market established by the Fair Work system (overseen by FWC) determine the pay & conditions of employees?
- modern awards
- enterprise agreements
- common law contracts
4 NES National Employment Standards
- MAX weekly hrs work 38 or less hrs/week + reasonable hrs of work
- right to request FLEXIBLE WORKING ARRANGEMENTS
-55+, parents, disabled can request change in working arrangements
-hrs, working from home -
LEAVE
-employees right to paid annual, sick, compassionate leave + holidays
-right to unpaid parental, community survice, long service leave -
CASUAL CONVERSION
casual employees worked for employer (not small bus) 12+ months MUST offered option to convert to FULL/PART time employment
national min wage provides safety net for employee not covered by an ___, responsible by the ___
award
FWC
awards
establish min. wage & working conditions for employees specific to employee’s wrk/industry
rates of pay & entitlements
extend protections of NES w/ provisions tailored to needs of specific industry
-overtime & penalty rates
-annualised wage/salary arrangements
-allowances
-leave-related matters
-procedures for settling disputes
most common method of wage determination in formal industrial relations system
ENTERPRISE AGREEMENTS
workplace agreement negotiated collectively through enterprise bargaining betw employer/s & ees usually represented by UNIONS
minimum for enterprise agreements
must comply with NES
cannot offer pay rates BELOW equivalent AWARD
collective (enterprise) agreements
cover all workers to management level in company
what issues do collective/enterprise agreements normally cover?
-wage increases (declined under EA over yrs)
-loadings for additional work hrs
-travel arrangements
-other changes relevant to specific sector/occupation
common law contracts/individual arrangements
not part of formal industrial relations system but comply with all minimum standards
simple agreements often used in small businesses
-add-ons to relevant awards
-cant offer pay rates & conditions below equivalent award unless offer high rates of pay above 167.5 thousand
enforced through ordinary law courts than industrial tribunals which require greater expense for employers/ees.
short term work contract
contracts which workers employed by labour hire company that sells their labour hire services to another company
