Wages, labour and productivity Flashcards
What are real earnings?
The level of earnings adjusted for the price level (inflation)
What is unit labour cost?
Wages, salaries, and other costs of using labour, divided by output per worker (cost for one unit of output)
What is Labour productivity??
Output per worker per unit of time
What is human capital?
The stock of skills and expertise that contributes to a workers productivity
What is wage elasticity of demand and how is it worked out?
A measure of the sensitivity of quantity of labour demanded to a change in the price of wages
%change in QD of labour/ %change in wages
What factors affect a movement on the demand for labour?
Price of labour ie wage rate
What factors cause a shift in the demand for labour?
- Change in the demand for the products workers produce (derived demand)
- change in productivity of workers, making them a more or less desirable to substitute for capital
- change in the price of goods that workers produce
- Change in the cost of capital
- change in an employment subsidy
4 factors affecting the Wage elasticity of demand
- Time- demand for labour is more elastic in the long run as workers can be retrained, inelastic in the short run
- Substitutability- the extent to which workers can be replaced by machines/ capital
- Proportion of total costs-if wages are a small proportion of a firms total costs then demand for labour is more price inelastic
- PeD of product- the more elastic demand for a product is, the more elastic the demand for labour is because wage costs are passed onto consumers by increased prices
Why is the demand for labour derived demand?
The demand for labour is not for the sake of labour but for the demand for the product that is being produced by that labour
Why do developing countries often have lower unit labour costs than developed countries despite having lower wages and lower productivity?
The proportion by which wages are higher in developed countries is often bigger than the proportion by which productivity is higher, so the wage for output can be lower in developed countries despite being less productive
Why do firms in developed countries offshore with examples
They can get a lower unit labour cost in developing countries, contracting areas of labour to these countries eg customer service centres in India
Pro and con of offshoring?
Pro- greater differences in wages between countries leads to greater incentives to offshore work due to the potential of higher profits
Con- may lead to lower quality output
What might be good and bad about increasing wages?
good- may reflect increased productivity
bad- may lead to increase unit labour costs if increased wages doesn’t lead to proportionally bigger increases in productivity
