Unit 3A: Microeconomic decision makers- Households, Trade unions, "what dictates the income we earn?" Flashcards
Define routine work
Work that is repetitive and only requires a low skill level
Define specialisation (national, regional, firm):
Occurs when firms/countries concentrates production on a specific good(s)/service(s).
Specialisation of labour occurs when workers perform specific tasks, it is one of the factors leading to economies of scale.
Define standardised goods
Goods which are uniform in appearance and quality.
Define piece rate pay
Wage/income that is linked to output (produced)
Define capital intensive
Where manmade resources (e.g. machinery) are mainly used in the production process to produce output
Define interdependence
When the action of one impacts on other workers/firms
Define labour productivity
A measure of efficiency found by calculating amount of output produced per unit of factor input (e.g. output per machine hour or per worker)
Define division of labour
Occurs when the production process is broken down into smaller tasks which each worker can specialise in. Division of labour leads to greater efficiency & productivity
Define labour intensive
Where human resources (labour) are mainly used in the production process to create output
Explain the 3 levels at which specialisation can occur in
National/countrywide:
A country concentrates production on a specific g/s or a narrow range of g/s. This is related to its factor endowment. The country can trade off the surplus.
Regional: A particular part of a country focuses on the production of a particular good.
Within a firm: Division of labour (just say the definition of DOL)
What is the equation for labour productivity?
Labour productivity = Total output / Total workforce
Why is specialisation beneficial to countries/firms?
Specialisation enables firms/countries to produce more than they need because workers are more productive and thus production is more efficient. The surplus can be traded off for other g/s.
An increase in labour productivity can be caused by:
Labour productivity is a major benefit of:
- workers have access to technology/capital as well
- specialisation
What are the benefits of specialisation to firms?
What are the drawbacks of specialisation to firms?
Advantages:
- Allows for machinery to be used
- More g/s can be produced efficiently
- The cost of producing a good falls as workers can produce g/s at a quicker pace
- Time is saved
Disadvantages:
- Goods are all standardised (When companies standardize products, they produce more of a smaller number of variations. This means that consumers have fewer choices between products, which may mean they end up purchasing something that doesn’t meet all their needs or desires = lower standards of living)
- The quality of goods may become poor as workers are bored from the lack of variety in work
What are the advantages of specialisation to workers?
What are the disadvantages of specialisation to workers?
Advantages:
- Full use is made of each persons talents. They work in what they are good at.
Disadvantages:
- Work may become boring
- Some workers may be replaced by machines
- Workers are less flexible: they are only skilled in one area of production = factor immobility
- Skills may be lost, workers cannot transfer to another industry
- Interdependence: over dependence on others (e.g. if one worker were sick the entire production process would be disrupted)
Explain the 4 factors affecting a firms choice of FOP?
- Productivity
Amount of output that can be produced from a given level of input. Firms will assemble FOP/resources in the most efficient way to maximise productivity. Improvements in technology may lead to more capital intensive production. - Relative prices
Firms will consider the relative prices of FOP e.g. if a trade union uses its bargaining power to raise wages, a firm may then use less labour as a machines cost is relatively lower - The size of the firm
As firms grow in size they tend to rely more on capital rather than labour (i.e. capital intensive production). This is because they can benefit from technical economies of scale, i.e. average costs of production reduces as scale of production increases. - The nature of the product
The type of product and the scale of demand will influence the combination of FOPs used. E.g. Mass-market products sold in international markets will need to be mass-produced using a high degree of machinery and automation. - The size of the firm
Define deskilling
Refers to the loss of proficiency over time. It is a cost to the unemployed.
Define trade unions
An organisation which aims to protect the interests and worker rights of its members i.e. their terms and conditions of employment, including pay.
Define perks/fringe benefits
Additional services/items that can be quantified in terms of money which are a part of a companies renumeration package (e.g. company car)
Define disposable income
The amount of income left to spend on g/s after necessary deductions such as income tax
Define occupational mobility
The ability of labour to switch between occupations
Define a savings account
A pool of funds built up during a persons working life which are then drawn upon in retirement as a source of income
Define overtime payments
Income which is derived from working additional hours beyond that which is stated in an employment contract
Define a pension fund
A bank account which offers the convenience of withdrawing cash without penalties but will not provide high interest rates
Define derived demand
Labour (& other FOPs) are not demanded for themselves, they are demanded for the products they will produce
Define minimum wage
The lowest legal amount a firm can pay its workers and is set by the government
Define a dividend
Rewards received by shareholders linked to the value of their investment and allocated from a firms profit
Define employment
The state of having paid work, or being self-employed
Define real income
Income that is adjusted for inflation.
Define income taxes
A levy charged by the government on wages/salaries
Define training
The development of skills and experience in the workforce that leads to greater productivity
Define wage rate
Price of labour. Determined by the demand and supply of labour
Define demand of labour
The number of workers firms are willing and able to hire at a given wage rate
Define supply of labour
Refers to everyone in the economy who is of working age and is willing and able to work at different wage rates in the workplace
List 4 examples of fringe benefits/perks:
- pensions
- health insurance
- company car
- education for children
What are the determinants for the demand of labour?
price factors: wage rates (contraction, extraction)
Non-price factors:
- productivity of labour
- Levels of demand for the g/s that the labour produces/booms/recessions
- Price of alternative factors of production (in the long run capital can be more cost effective than labour e.g. cameras vs gaurds)
What are the determinants for the supply of labour?
price factors: wage rate (contractions, extractions)
non-price factors:
- perks in an industry compared to others
- education and training
- Trade union activity
- Changes in the size of the working population
- Welfare provision
- Changes in the conditions of substitute industries
For workers, productivity can increase real __(1)__ as they produce greater output per hour. This can lead to a better ___(2)____ ___(3)____
- wages
- living
- standards
One reason supply of labour increases is because wages have grown faster than the average price of a product. Economists call this an increase in __(1)____ wages.
- real
Real-wages are income expressed in terms of purchasing power vs actual money recieved.
What are the determinants of the demand of labour?
- Derived demand
- Productivity of labour
- Cost of substitute FOPs
Determinants of the supply of labour
- improvements in perks/fringe benefits (change the attractiveness)
- Education and training required (longer education/training period = less supply = less able to supply coz less access to education = or less willing to supply coz need urgent source of income)
- Changes in the size of working population (larger size = more people can supply their labour)
- Trade union activity (if large part of workforce is a part of the trade union then they will have a large impact)
- Changes in conditions of substitute industries (if workers can move to other industries with ease then supply to that industry will rise)
- Availability of welfare benefits (welfare = government assisted programmes = e.g. health care, food stamps = lack of welfare benefits can be incentive for the unemployed to find work as without govt assistance life can be very uncomfy
What are reasons that people earn different wages in different jobs?
- Difference in ability and talents
- Difference in training and education periods
- Difference in the level of demand for the g/s that the labour produces
- Some jobs are considered ‘dirty’ (e.g. collecting rubbish)
- Unsociable/sociable hours
- Lack of info on jobs and wages
- Labour immobility
- Perks/fringe benefits - in some cases these can make up for low wages
- some jobs are dangerous/risky
- The value of output produced/revenue the employee generates
What are the possible reasons that people in the same jobs receive different wages?
- Shortage of workers in certain regions
- Length of service
- Local pay agreements
- Cost of living - wage rates that account for this may differ
- Discrimination
What are the wage factors that affect choice of occupation?
- Wages and salaries
- Commissions and performance related pay
- Bonuses
What are the non-wage factors that affect choice of occupation?
- Fringe benefits
- Job security
- Cultural issues
- Promotion opportunities
- Career prospects
- Job satisfaction
- dirty
- dangerous
- sociable/unsociable working hours
- allows balance w family comitments
What are all the methods of payments to workers?
- Wages: time based = variable cost to firm
- Salary: Monthly payment = fixed cost
- Piece rate: Paid by unit of output produced or sold
- Commision: Percentage of the value of g/s sold
- Bonus: Additional lump sum, could be performance related
- Profit-related pay: Additional payments to workers according to profits
- share options: workers receive shares to incentivize them to work
- Fringe benefits: Additional benefits which have a monetary value
Describe the primary sector (definition and in terms of labour)
- extraction & production of raw materials
- farmers
- coal miners
- Low wage
- Unskilled
- Low value output
Describe the secondary sector (define and also in terms of labour)
- Manufacturing goods from raw materials (Higher value output)
- Factory worker
- Construction worker
- Reasonable wages
- More skilled
Describe the tertiary sector (define and also in terms of labour)
- all economic activity offering intangible goods and services to consumers. (High value output)
- Banker
- Software engineer
- High wage rate
- Lots of training and experience
What are the differences between men and women in the workforce
Men
- More are in full-time work
- Career pathway is usually unbroken
Women
- More are in part-time work
- Greater tendency to take career breaks and miss out promotional opportunities
- Accept lower pay coz of family commitments
- Face discrimination
- Less likely to benefit from trade unions (especially in part time)
differences between private sector and public secotr:
Public:
- Got Job security
- Got pension (provided by govt)
- Generally lower wages than private
Private
- Got NO job security
- Got NO pension (provided by govt)
- generally higher wages than private
What are all the ways in which governments have influence in labour markets?
- To protect the rights of employers and employees
- To regulate the practices of very strong trade unions and employers
- To raise the wages of those with very low pay
- To increase the competitiveness of firms by raising skill level and productivity
- subsidising training and learning of new skills
- Mandating higher education levels
- Remove monopolies and encourage competition
- To reduce unemployment
- Have job fairs
- Subsidise firms to lower costs of production
- reduce/remove unemployment benefits
- reduce/remove minimum wage
- reduce/remove corporate income tax
Define working conditions
The terms of work outlined in an employment contract
Define strike action
A type of industrial action where workers withdraw their labour as a result of a dispute with their employers
Define overtime ban
A type of industrial action where workers refuse to work additional hours beyond that which is stated in their employment contracts
Define inflation
A sustained rise in the average price level
Define work to rule
An industrial action where workers withdraw their ‘goodwill’ to engage in any further activities beyond that which is stipulated in the employer-worker contract.
Define productivity agreement:
Where an employment agrees to raise the pay for the workforce if workers increase output.
Define collective bargaining
A process of negotiation between employers and employees aimed at agreements to regulate working conditions, and other aspects of workers compensation and rights for eorkers
Define industrial action
Measures taken by trade unions as a result of disputes with employers. Pressures employers into future discussions about pay and working conditions.
What are the roles of trade unions
- To raise the wages of worker members
- To improve working conditions (e.g. working hours)
- To protect job security and support worker members who may have been made redundant/retrenched
- To campaign for fringe benefits/perks/pensions to employers and the govt
- To provide legal and financial support to members who were unfairly dismissed or disciplined
How can trade unions support their worker members?
- collective bargaining power, organising industrial action
- representing members in court
- protecting job security
- They can either increase demand or decrease supply in order to raise wages
- decrease supply = industrial action - can lead to kinked supply curve
- increase demand = productivity agreements
Pros of strike action to members
cons of strike action to members
pros:
- has immediate affect, production halts,
- businesses suffer and are pressured to respond
- May get media coverage (public support)
cons
- And from general public who no longer have acess to certain services
- Workers arent paid while on strike
- Notice of strike has to be given otherwise its illegal
What are all the factors affecting trade union strength?
- proportion of total costs (trade union member wages) wages represent = smaller proportion = more likely to get wage rate rise = coz doesn’t significantly affect costs
- Availability of substitute factors of production
- Levels of profit at a firm
- Laws regulating industrial action
- Worker productivity
- Macro influence - unemployment levels
- Macro influence - boom or recession
- boom = greater consumer demand = easier to raise wages
- Elasticity of g/s
- Number/amount of memberships in trade union
Define collective bargaining
Trade unions (using their bargaining power) do collective bargaining, where they can make wage claims for their client
What are all the types of industrial action?
- Strike
- Work to rule
- Go slow = productivity and efficiency fall = morale drops
- Sit in = production temporarily stops = loss in wages = if sustained, falling of living standard
What are the reasons for greater membership in trade unions?
- growth in manufacturing jobs
- low pay
- poor working conditions
- widening wealth gap or higher cost of living causes workers to petition for higher wages
What are the reasons for less memberships in trade unions?
- Government legislation
- Decline in manufacturing jobs
- Growth in part time jobs
- Growing number of firms agreeing to fairer terms as a part of their corporate social responsibility (CSR)
- Increased unemployment
- Increased self - employment
What are the negative impacts of trade unions?
- Industrial action = poorer efficiency = others may not may access to certain services etc
- Govt tax revenue falls as firms profits also falls
- closed shop policy = all workers have to be part of the union
- Membership costs to worker members
benefits of trade unions
negotiate minimum wage = raise standards of living = motivate work force = greater productivity
What is a kinked supply curve? Define and draw one:
A diagram that illustrates how trade unions will bargain up wage rates above the free market wage rate such that members will only provide their labour at or above the new, higher wage rate
What is a backwards bending supply curve? Draw one:
Beyond a certain extent workers are less willing to provide their labour as working hours are too high at higher wage rates
Draw a minimum wage graph
What kind of people at working age DON’T supply their labour?
- house-husbands/house-wives
- Full time students
- Retirees
- The disabled
- People who are independently wealthy
