Topic 5 Flashcards
what characteristics does perfectly competitive market have
- Large number of firms hiring identical type of labor
- Numerous qualified people independently offering their services
- Neither firm or workers have control over the wages
- Perfect, costless information & labor mobility
What sort of a labor supply exists
Backwards bending, but normally positively sloped across normal wage ranges
What attracts people away from household production, leisure or previous jobs?
High relative wages
What does the height of the supply curve measure?
The opportunity cost using the marginal labor hour. The shorter the period, less elastic is the labor supply curve.
WHat happens to surplus in labor supply?Both employers / employees
More people looking for work - start to accept work for lower wages, employer hires more as MWC are lower
Draw labor market supply graph & explain
Check notes
What determine the supply of labor (shifting curve left or right) (5)
- Other wage rates (occupations)
- Non-wage income
- Preferences for work versus leisure
- Nonwage job aspects
- Number of qualified suppliers (labor)
What determine the demand of labor (Shifting curve left or right) (4)
- Product demand
- Productivity
- Price of other resources (e.g. substitutes for labor or gross substitutes or compliments, check the notes)
- Number of employers
Illustrate the graph when there is a change in labor demand due productivity increase bc of innovation (what happens to the curve)
Check notes
Illustrate the graph when there is a change in labor supply due to increase in population (what happens to the curve)
check notes
what happens to employees applying to firms in a perfectly competitive environment. Answer & illustrate - when do they hire more? When are they maximising profit?
They are “wage takers” - firm will hire more if the additional revenue the worker generates MRP > MWC. Maximises profits by MRP = MWC - value of the product should match MWC
what is allocative efficiency?
This is obtained when society gets the largest amount of output from a given amount of labor. Society wants a max reward of every person working. Value out of employees
What does efficient allocation require?
VMP (Value of marginal product of labor) = Price of labor
What creates allocative efficiency?
Perfect competition in the product and labor market
Draw a wage and employment curve for monopolist market - what happens there, explain, to price, labor & value
Check your notes
What is a monopsony
A labor market where a single firm is the sole hirer of a particular type of labor.
What does monopsonist have a control over?
Wage rate workers are paid by hiring more or less labor (as only one hirer, offer higher wages)
Draw Monopsonist wage & employment graph ( & explain)
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How do you calculate TWC for a firm
Number of units of labor times the wage rate
What is MWC
the additional cost of hiring the last worker
How can unions increase the price of their workers? (3)
- Increase the demand for union labor
- Restrict the supply of labor
- Bargaining for an above equilibrium wage
What results from union increase of prices? explain & illustrate
check notes.
Higher wages and employment
What happens if union decreases the supply of labor? Illustrate & explain
Check notes.
Equilibrium wages will rise, but equilibrium quantity will fall
How to increase union labor demand (5)
1 Increase product demand (lobby for tariffs on foreign goods)
2 Enhancing productivity (participation in labor management committees for productivity)
3 Influencing the prices of related inputs (lobbying for minimum wage hikes as they raise the price of substitutable less skilled non union labor)
4 Acts / Laws influencing how much union members are paid by contractors
5 Increasing number of employees (e.g. domestic production)
How union limits labor supply (5)
1 Raising number of qualified suppliers of labor
2 lobby to reduce migration, child labor and lenght of working week
3 Limit entry into occupation through long apprenticeship
4 Occupational licensing
5 Raising non wage income, e.g. social security to decrease labor supply
Illustrate how to bargain for above equilibrium wage - explain consequences
check notes
Illustrate & explain bilateral monopoly in the labor market when facing union labor
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Illustrate & explain wage determination by cobmodel for highly trained professionals
check notes
