UK labour market Flashcards
what is the theory of marginal productivity of labour?
states that the demand for workers depends on their marginal revenue product
what is marginal revenue product?
the value of the physical addition to output arising from hiring one extra unit of labour
what are the 5 things marginal revenue productivity theory assumes?
- 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).
what are some determinants of individual firms demand for labour?
- 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
what is the elasticity of demand of labour?
the responsiveness of quantity demanded of labour to a change in the WR
determinants of PeDl?
-time
-subs
-PeD of product (mirrors it)
-proportion of labour costs to total costs
Eval for PeDl?
-not all workers are homogenous
-hard to quantify MRP
-assumes firms dont have buying power
-pay scales
What are the key factors affecting labour supply? (4)
-level of unemployment
-barriers to entry (e.g. qualifications)
-improvements in the occupational mobility of labour
-size of working population
What is the elasticity of labour supply?
The responsiveness of labour supply to a change in wage rate
What does elasticity of labour supply depend on?
-time
-skills and qualifications
-length of training period
-sense of vocation
what are the features of a perfectly competitive labour market? (6)
-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
Why does the firm and industry produce at QL in a perfectly competitive labour market?
because that is where MCl=MRP as we assume they are SR profit maximisers as we assume rationality
Why do wages differ?
-age
-gender
-ethnicity
-education
-training
-experience
-monopsonists exist
-labour is not perfectly mobile
What are some reasons for the gender pay gap?
-differences in education levels and work experience
-part-time work (women are more likely to take part time jobs)
-travel patterns- women spend less time commuting for work so less job options)
-occupations that are more female dominated tend to be paid less
-under-represented in higher paid jobs
What is a monopsonist?
When a firm is a dominant or monopoly buyer in the market
What do monopsonists do?
-Restrict employment and lower wages
-they have buying power
Why is the Dl curve downward sloping?
because of the law of diminishing returns
What is a trade union?
An organisation of workers who join together to further the interests of its members
What do trade unions do?
-improve working conditions
-higher wages
-protecting pensions
-counters monopsony power
What makes one union more effective than another?
-union density
-public support
-legislation
-economic climate (economic cycle)
-if its industry union or general workers union
What is trade union density?
measures the percentage of people employed in an industry who are members of a trade union
What are the reasons why trade unions wouldn’t be successful in a perfectly comp market?
-union density low (bounded rationality)
-elastic supply, workers easily replaced, less bargaining ability
-part time, lots of these jobs are temporary
What is Income?
earnings from work, a flow of money
What is the Lorenz curve?
A diagrammatic representation of the distribution of income and wealth
What is the Gini coefficient?
A statistical measure of the degree of inequality of income and wealth - closer to 0 the closer to perfect equality
What are some government interventions to reduce the gap between the rich and poor? (6)
-inheritance tax
-minimum wage
-benefits
-income tax
-contextual offers
-bursaries, FSM
What is absolute poverty?
When an individuals household income means they can’t afford necessities
What is relative poverty?
When people are poor in comparison to others
What are the causes of poverty? 3
-unemployment
-low wages
-imperfect information
Why is poverty a problem?
-costly - benefits…
strain on public services e.g. healthcare
-negative externality e.g. crime
What is the poverty trap? w example
Stops an individual from leaving poverty e.g. if they choose to get a job = less benefits and supplementary costs (transport, childcare etc…)
how to eliminate the poverty trap?
-Gov could raise income tax threshold *
-childcare benefits
-make income tax more progressive
-higher min wage
