Wage determinants in competitive and non competitive markets Flashcards

1
Q

sticky wages

A

Wages aren’t as flexible in reality as they seem theoretically on a graph, minimum wage means during a recession employers would be sacked rather than wage reduced

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2
Q

What are the current labour market issues

A
  • Wage Differentials
  • Impact of Migration
  • Imperfect information
  • Unemployment
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3
Q

Reasons why there are wage differentials

A
  • Formal education = higher wage
  • More training and qualifications = higher wage
  • Pay gaps as unskilled work has shifted abroad
  • Skilled workers are more productive so In higher demand = higher wage
  • Discrimination may receive lower wages due to age gender race religion
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4
Q

How does imperfect information result in labour market failure

A

Workers and employees don’t have perfect information so don’t all have the perfect job or perfect amount of productive workers, causes underemployment, frictional unemployment and workers being less productive

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5
Q

How can migration cause labour market failure

A

Increases size of workforce thus increasing the competition to get a job which increases unemployment for some. Migration labour is so cheap it brings down the wages of the lowest paid and can displace some.

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6
Q

Reasons why Unemployment is a labour market failure

A
  • psychological consequences of unemployment
  • Consumers have less disposable income so their standard of living drops and risk of recession
  • Damages Government finances as they receive less tax revenue and spend more on JSA
  • Opportunity cost to society of missed production value of employees
  • Increase in crime
  • Youth unemployment causes hysteresis as their skills won’t develop so they will remain unskilled and unemployed into adulthood causing structural unemployment
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7
Q

Unemployment Trap

A

When benefits are too high so encourages people not to work and take benefits

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8
Q

What is the unemployment to the left of Q1 when a NMW is introduced

A

The unemployment created in that industry as firms lay off workers as they can’t afford to employ as many with a NMW

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9
Q

What does a NMW do

A

Reduces demand for labour and increases supply causing unemployment

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10
Q

What is the unemployment to the right of Q1 when a NMW is introduced

A

Unemployment caused by people leaving their old job and coming to this industry with the NMW

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11
Q

What is the main evaluative point for NMW

A

No evidence in the UK ever of a rise in unemployment as a result of a NMW

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12
Q

Advantages of a NMW

A
  • Help people on low incomes ensuring a basic living wage, stopping absolute poverty
  • Make workers more productive as they receive better wages
  • More incentive to get a job rather than be unemployed
  • Greater gov tax revenue
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13
Q

Disadvantages of a NMW

A
  • Increase wage costs for firms causing them to have to cut jobs causing unemployment
  • Decrease international competitiveness of UK as other countries have lower wage costs
  • Could cause inflation if wage cost rises are passed on
  • NMW doesn’t benefit the poorest people who can’t work like the elderly and sick
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14
Q

Maximum wage

A

Is done to limit wages to increase demand for labour set below equilibrium

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15
Q

Advantages of maximum wages

A
  • Control wage cost push Inflation
  • Redistribute wealth, limiting inequality
  • Increase firms willingness to hire workers
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16
Q

Disadvantages of maximum wages

A
  • Unfair to not reward better work with better income
  • Decreases motivation and incentive to work so productivity decreases
  • Can cause brain drains or labour deficiencies in industries with maximum wages
  • Must be judged perfectly by the government
17
Q

Public sector Wage setting

A

Set by the government means that wages are fairer and more equal than private sector

18
Q

what percentage of gov spending is public sector wages

A

almost half

19
Q

What are some problems with public sector wages

A
  • Government will restrict wages as well causing high skill labour to go private
  • If government reduces this can have huge consequences and strikes
  • Monopsony employers can manipulate wage rate to whatever they want
20
Q

What is labour market flexibility

A

How willing and able labour is to respond to changes in market conditions, namely demand changes, relies on labour mobility

21
Q

Policies to increase labour market flexibility

A

Trade Unions - Reducing their power increases flexibility
Regulation - excessive regulation on firms about workers rights decreases flexibility
Benefits and tax - lower benefits and lower tax rates will increase flexibility
Training - More training and cheaper to make a more skilled workforce so more flexible
Education - improve quality and implement apprenticeships gives young people practical skills for jobs increasing flexibility
Infrastructure - improves geographical mobility
Housing - More affordable increases flexibility

22
Q

Short term and zero hour contracts

A

Allow much easier hiring and firing of workers which increases the flexibility