Topic 7 - The Labour Market

Question 1

3. Imperfectly competitive labour markets - Monopsony

Question 2

What is a monopsony employer?

Answer 2

The dominant buyer of labour in the labour market.

Question 3

What do monopsony employers have?

Answer 3

Buying power over potential employees.

Wage-setting powers.

Question 4

Give 2 examples of monopsony employers.

Answer 4

National health services.
Amazon.

Question 5

Why will the monopsony employer have to bid up wages?

Answer 5

To attract new workers because the supply curve of labour is upwards sloping.

Question 6

Draw a diagram that shows the effect of monopsony power, and the wages lost due to underpayment by employer.

Answer 6

The diagram is on page 34 of notes.

Question 7

What will happen to the equilibrium wage rate and employment level with the presence of a monopsony employer?

Answer 7

Monopsony employer will lower wages, as we assume that employers like to keep costs low relative to supernormal profit.

Question 8

What are zero hour contracts?

Answer 8

An employment contract as the employer is not obliged to provide any minimum working hours.

Question 9

What are the effects of zero hour contracts on the market equilibrium wage in the labour market?

Answer 9

People earn less wages, disincentivsing them from staying in the labour market.

Question 10

4. Trade Unions

Question 11

What are trade unions?

Answer 11

Organisations or workers, who seek (through collective bargaining) to negotiate better wages and working terms and conditions.

Question 12

Where do most unions belong to?

Answer 12

Trade union congress.

Question 13

What are the 4 key roles for trade unions?

Answer 13

1. Protecting & improving real living wages of their members.
2. Protecting workers against unfair dismal.
3. Promoting improvements in working conditions.
4. Better workplace training and education.

Question 14

Draw a diagram in which shows the effect of a trade union on wages and jobs in a perfectly competitive labour market.

Answer 14

In notes page 45.

Question 15

Draw a diagram in which shows the effect of a trade union on wages and jobs in an imperfectly competitive labour market.

Answer 15

In notes page 47.

Question 16

For the long term decline in trade unions, give a piece of evidence to show that trade union membership levels in the UK have decreased from 1995 to 2021.

Answer 16

There was 8000 trade union memberships in 1995, and 6700 trade union memberships in 2019, based on administrative data.

Question 17

5. The National Minimum Wage

Question 18

What is a national minimum wage?

Answer 18

A statutory pay floor that cannot be undercut by firms.

Question 19

Draw and annotate the diagram that shows the impact of a national minimum wage.

Answer 19

In notes, page 53.

Question 20

Draw and annotate the diagram that shows the impact of a national minimum wage with inelastic labour demand.

Answer 20

In notes, page 53.

Question 21

What are the 3 advantages of a NMW?

Answer 21

1. Antidiscrimination in the labour market.
2. Poverty reduction.
3. Higher wages, utility, and productivity.

Question 22

What are the 3 disadvantages of a NMW?

Answer 22

1. Higher cost of labour to firms
2. Higher inflation = lower real incomes to households.
3. UK businesses become less competitive globally.

Question 23

How does a NMW lead to antidiscrimination?

Answer 23

Tackles the discrimination of low paid female workers.

Question 24

How does a NMW lead to poverty reduction?

Answer 24

A minimum wage boosts take home pay and real incomes of low paid workers.

Question 25

How does a NMW lead to greater productivity?

Answer 25

A higher MW = more productivity due to greater wages, welfare and utility.

Question 26

How does a NMW lead to higher labour costs to firms?

Answer 26

A higher minimum wage adds to the cost of employing workers.

Firms may unemploy workers to protect workers.

Question 27

How does a NMW lead to higher inflation?

Answer 27

High labour costs = upward pressure on prices = inflation = greater cost of living = less real incomes for consumers.

Question 28

How does a NMW lead to reduced competitiveness for UK businesses globally?

Answer 28

Manufacturers struggle to keep costs lower.

Fewer exports = reduced revenue generation and supernormal profit = job losses, and it becomes harder to meet costs.

Question 29

In the UK, what has the national living wage rate increased from?

Answer 29

£10.42 hourly to £11.44 hourly.

Question 30

In the UK, what does the national living wage rate increase mean for employees aged 21 or over?

Answer 30

Employees aged 21 or over become entitled to national living wage, as you needed to be age 23 previously.

Question 31

6. Discrimination in the labour market

Question 32

What is wage discrimination?

Answer 32

Employers paying different workers different wages for the same job.

Question 33

When can wage discrimination also occur?

Answer 33

When a group of workers is paid below their MRP.

Question 34

Draw and explain the diagram that shows wage discrimination for a monopsony.

Answer 34

In page 59 of notes.

Question 35

What are the conditions necessary for wage discrimination?

Answer 35

Unemployment - desperation to work.
Lack of information - leads to exploitation.
Geographical immobility.
Friction in-between moving jobs.

Question 36

Draw and explain a diagram that shows labour market discrimination.

Answer 36

In page 61 of notes.

Question 37

**Page 61 onwards.