UK labour market

Question 1

what is the theory of marginal productivity of labour?

Answer 1

states that the demand for workers depends on their marginal revenue product

Question 2

what is marginal revenue product?

Answer 2

the value of the physical addition to output arising from hiring one extra unit of labour

Question 3

what are the 5 things marginal revenue productivity theory assumes?

Answer 3

• workers are homogenous
  -firms have no buying power
  -trade unions have no impact on the availability of labour
  -the physical productivity of each worker can be accurately measured
  -the supply of labour is assumed to be perfectly elastic (workers are geographically and occupationally mobile and will work at a constant wage rate).

Question 4

what are some determinants of individual firms demand for labour?

Answer 4

• demand/price increase then MRP increase
  -if productivity increase then MRP increase
  -price of subs for labour increase then MRP increase
  -supplementary costs fall then MRP increase
  -profitability of buyer increase then MRP increase

Question 5

what is the elasticity of demand of labour?

Answer 5

the responsiveness of quantity demanded of labour to a change in the WR

Question 6

determinants of PeDl?

Answer 6

-time
-subs
-PeD of product (mirrors it)
-proportion of labour costs to total costs

Question 7

Eval for PeDl?

Answer 7

-not all workers are homogenous
-hard to quantify MRP
-assumes firms dont have buying power
-pay scales

Question 8

What are the key factors affecting labour supply? (4)

Answer 8

-level of unemployment
-barriers to entry (e.g. qualifications)
-improvements in the occupational mobility of labour
-size of working population

Question 9

What is the elasticity of labour supply?

Answer 9

The responsiveness of labour supply to a change in wage rate

Question 10

What does elasticity of labour supply depend on?

Answer 10

-time
-skills and qualifications
-length of training period
-sense of vocation

Question 11

what are the features of a perfectly competitive labour market? (6)

Answer 11

-perfect knowledge
-perfect mobility of labour
-all workers and employers are wage takers
-no barriers preventing wages from falling or rising
-firms aim to maximise profit and workers aim to maximise wages
-large number of small firms hiring large number of workers

Question 12

Why does the firm and industry produce at QL in a perfectly competitive labour market?

Answer 12

because that is where MCl=MRP as we assume they are SR profit maximisers as we assume rationality

Question 13

Why do wages differ?

Answer 13

-age
-gender
-ethnicity
-education
-training
-experience
-monopsonists exist
-labour is not perfectly mobile