Wage determination in competitive and non competitive markets

Question 1

At which intersection is the equilibrium market wage rate?

Answer 1

It is the intersection of the supply and demand for labour

Question 2

Give two key factors as to why wage differentials may occur

Answer 2

.Compensating wage differentials-might reward risk taking/working in poor conditions
.Reward for human capital
.Different skill levels
.Trade unions
.Differences in labour productivity and revenue creation
.Artificial barriers to labour supply
.Employer discrimination

Question 3

What is a gig economy?

Answer 3

It is fragmented work where someone is given a task for a certain amount of time

Question 4

Give a benefit for businesses from a gig economy

Answer 4

.Reduces fixed costs-lower payroll expenses
.Reduced investment
.Flexibility in managing hours to expected demand for their products

Question 5

Give two benefits to the workers from a gig economy

Answer 5

.Flexible hours/control over when you work
.Ability to work from home more
.A common way for people to earn extra income
.Less risk of getting stuck in routine jobs

Question 6

Give two drawbacks from a gig economy to the worker

Answer 6

.Doubts over the true flexibility of hours offered by employees
.Lack of paid vacation/sick pay
.Job and income uncertainty make it harder to get a mortgage
.Inadequate investment in worker training
.Workers bear most of the risk in their jobs

Question 7

Give a wider downside of the gig economy

Answer 7

.Shrinking tax base will hit revenues
.Reductions in road safety/more accidents from uber eats/amazon drivers
.The jobs offered are not high quality

Question 8

What are some possible micro-economic effects of an ageing population?

Answer 8

.Changing patterns of consumer demand in markets affecting the profits of particular businesses in different sectors
.Impact on housing market
.Impact on labour market

Question 9

Give an effect of the introduction of robotics in the work place

Answer 9

.Impact on productivity and costs and profits of certain businesses
.Impact on demand for/supply of labour in specific jobs
.Impacts on consumer welfare-lower prices leads to more disposable income

Question 10

Give a micro-economic effect of a fall in net labour migration

Answer 10

.Shortages of skilled labour
.Impact of demand for and prices of properties to buy and to rent
.Effects on dynamic efficiency

Question 11

What do trade unions do to try and protect their members?

Answer 11

They use collective bargaining against employers in order to protect their employees

Question 12

Why is there a long term decline in trade union membership?

Answer 12

.Impact of legislation that has removed /reduced many of the trade unions powers to engage in industrial action
.Rise in flexible labour markets
.De-industrialisation-fewer jobs in industries which had a heavy union presence

Question 13

What are two key roles of trade unions?

Answer 13

.Protecting and improving the real living standards/real wages of their members
.Protecting workers against unfair dismissal
.Promoting improvements in working conditions
.Promoting better workplace training and education

Question 14

What do zero hour conflicts not guarantee?

Answer 14

They do not guarantee a minimum number of working hours each week

Question 15

Give the two arguments in favour of zero hour contracts

Answer 15

.Supporters of flexible employment contracts argue that they are good for businesses where demand and production is highly seasonal
.Zero hour contracts might benefit some people who want a high level of flexibility in choosing when they want to work

Question 16

Give two arguments against zero hour contracts

Answer 16

.Zero hour contracts have contributed to an increase in work poverty where people are not able to work enough hours each week to earn sufficient to avoid remaining in poverty
.Uncertain incomes make it harder for people to be given loans, mortgages and mobile phone contracts

Question 17

Give two underlying causes of the gender pay gap

Answer 17

.Breaks from the labour market
.Access to education
.Patterns of employment in developed countries
.Increased female participation rates in economies has increased the supply of labour which may have contributed to low relative wages

Question 18

Give four interventions which could be used to improve labour mobility

Answer 18

.Providing access to better quality training within firms
.Better funding for technical/vocational education
.Improving the affordability and reliability of transportation
.Addressing chronic house shortages
.Creating a bigger difference between pay/earnings
.Lowering the burden of direct taxes
.Providing tax free child care for all children aged 3 and over

Question 19

If labour demand is inelastic what type of contraction will be seen on the level of labour demand?

Answer 19

A higher minimum wage will cause only a limited contraction on the level of labour demand

Question 20

Give two reasons for a higher minimum wage

Answer 20

.Equity justification
.Poverty reduction
.Training
.Incentives
.Anti-discrimination

Question 21

Give two arguments against a rise in the minimum wage

Answer 21

.Higher minimum wage adds to the costs of employing workers and might cause higher unemployment
.Small businesses may risk closure with a higher minimum wage
.There are better incentives for training than a minimum wage
.It makes UK businesses less competitive on a global scale
.Higher labour costs may cause higher inflation, which lowers income for households

Question 22

Give two arguments for executive pay ceilings

Answer 22

.Equity and fairness
.Bonus culture encourages short term decision making rather than focusing on longer term decision making for the business
.Huge levels of executive pay contribute to growing income and wealth inequality

Question 23

Give two arguments against executive pay ceilings

Answer 23

.Ceiling might lead to talented executives moving away from the UK-high rate of pay is a price signal within the market
.Might lead to businesses relocating overseas
.Capping pay and businesses may lead to rewarding executives in other ways such as complex share options
.Introducing higher marginal income tax rates on top of executive pay might be a better option than capping