Wage Determination in competitive and non-competitive markets (3.5.3) Flashcards
What do wage rates differ with?
-age
-training
-work experience
-skill/talent/ability to perform tasks
-sex
-ethnic background
(These last two are illegal but are still an issue)
When does labour market equilibrium occur?
Where the demand for labour (D little L) is equal to the supply of labour (S little L)
What does the D (little L) stand for?
Demand by firms for workers
What does the S (little L) stand for?
The supply of labour by workers
What does the labour market equilibrium look like on a graph?
Slide 31
What are some recent/current labour market issues in the UK?
-Skills Shortages which meant increasing wage rates
-Youth unemployment due to employees preferring to employee skilled worker
-Changes to retirement age
-School leaving age
-Zero-hour contracts
-Temporary/flexible working
Why does the UK government intervene in the labour market?
This is to imrpove equity and avoid the exploitation of workers. A max wage has been imposed in past for CEO’s who have been overpaying themselves. A minimum wage is a legally imposed wage level that employees must pay their workers and it’s set above the market rate and is based on age.
What does the National minimum wage look like on a graph?
Slide 32
What is labour market immobility?
Refers to the inability or reluctance of workers to move between different jobs, regions, or industries
What are some examples of policies used by the UK government to tackle labour market immobility?
- Improved education/ training- Education improves skills and a wider skill base allows workers to move more easily between jobs
- Targeting skills shortages- Identify markets with specific skill shortages and train
- Subsidising employers- Per hire subsidy incentives employers to take on workers and train them which improves occupational immobility
- Relocation subsidies- Reduces geographical and occupational immobility
- Reducing info asymmetry- Job centers and improving flow of ingo helps identify new opportunities quickly
- Reducing discrimination- In hiring practices will help some workers improve occupational mobility
What is elasticity of demand for labour?
Refers to how responsive a firms demand for labour is to a change in the price of labour (wage rate)
What does it mean if demand for labour is elastic?
Then an increase in wage rate will result in a more than proportional decrease in the quantity of labour demanded by firms. Firms will be very responsive to changes in wage rates rapidly hiring new workers when wages fall and firing workers when wages rise
What does it mean if demand for labour is inelastic?
An increase in the wage rate will result in a less than proportional decrease in the quantity demanded of labour demanded by firms. Firms will have a much smaller response to the rising or falling wages
What are factors that influence PED of labour?
-Proportion of labour costs to total costs-higher they are then more elastic the demand for labour
-Ease and cost of factor substitution- How easy to substitute capital for labour
-PED of final product-e.g. if wages increase will be passed onto consumers for higher prices
-Time period-in short-run demand is likely to be price inelastic but as time goes on firms can research other methods and labour can become more price elastic
What is price elasticity of supply of labour?
How responsive the supply of labour is to a change in the price of labour (wage rate)
What does it mean if the supply of labour is elastic?
Then an increase in the wage rate will result in more than proportional increase in Q of labour supplies. In low skilled occupations the quantity of labour is responsive to a change in wage rates (Highly responsive)
What does it mean if the supply of labour is inelastic?
Then an increase in the wage rate will result in a less than proportional increase in the quantity of labour supplied. Occupations which require a longer and higher level of training tend to have an inelastic supply of labour. (not very responsive to changes in wages)
How are wages determined in a perfectly competitive market?
Wages are determined purely by demand and supply and all workers are paid the same
What does wage determination look like on a graph for a perfectly market?
Slide 33
Will wages be set where demand equals supply in an imperfectly competitive market?
No
What does the wage rate look like in a monopsony market on a graph?
Slide 34
What does the wage rate look like in a monopoly market on a graph?
Slide 35
What is a Bilateral monopoly?
When there is both monopoly and monopsony in a labour market
