week 17 Flashcards
what are the five trends
- industrialised countries have had real wage growth
- rate of real wage growth has stagnated since 1973
- wage inequality has increased
- number of people employed has increased
- western europe has higher unemployment than US
what is the labour market
supply and demand analysis can be used to find price of labour and quantity
labour market is an input market
look at aggregate levels of employment and real wages
what affects demand for labour
productivity of workers - greater productivity increases employment
price of the workers output - high real price increases employment
diminshing returns to labour
what affects demand for labour
productivity of workers - greater productivity increases employment
price of the workers output - high real price increases employment
diminishing returns to labour - assumes non-labour inputs are constant, adding one worker increases output by less than previous worker added
what is value of marginal product (VMP)
extra revenue that an added worker generates
what is the demand for labour curve
maximise profits, firms hire extra work - only if VMP exceeds wages
VMP decreases as more workers are hired
more workers employed at lower wage
downward sloping
when does labour demand shift
VMP of worker changes
determined by price of company’s output and productivity of workers
how is demand for labour affected by price of output
price of output increases, demand shifts right
an increase in price of workers ouput increases demand for workers
how does productivity affect demand for labour
increase in productivity increases VMP
demand curve shifts right, hire more workers at any given wage
what is reservation wage
lowest wage a worker would accept for a given job
opportunity cost of leisure time
what is aggregate labour supply
determined by:
size of working population
share of working age pop willing to work
wage rate - increases, workers are more willing to supply labour
education and training
what causes a shift in labour supply
caused by a change in number of workers willing to work at each wage
increase/decrease in working age pop
increase/decrease in share of working age pop
job availability
education and training
what causes increasing wages
increased labour demand
real wages and employment increased
productivity increased from tech progress and increased capital
what caused stagnated wage growth
slower demand growth
supply of labour has increased
labour supply will slow, depends on whether productivity growth continues to decline
what caused increased wage inequality
globalisation caused expansion of markets
increased specialisation and efficiency
goods produced domestically are no longer competitive
wages in importing industries fall and wages in exporting industries increase, wage inequality increases
technological change - favours higher skilled workers
what is the principle of comparative advantage
countries should specialised in producing goods and services that they can produce at lower cost than other countries
what is globalisation
flows of goods, services, capital and labour across international borders
impacts low wages workers
what is worker mobility
movement of workers between jobs, firms and industries
what is skill-biased technological change
affects the marginal products of higher skilled workers differently from lower skilled workers
what are the mechanisms for the effects of globalisation
merchandise trade - importing goods that are made with low skilled workers and exporting goods made with high skilled workers
outsourcing
how does technology affect inequality
eliminates low skilled work
what drives increasing inequality
technology
globalisation
labour market policies - reduces worker bargaining power
tax policies - cuts to social safety nets
differences in education/skill level
discrimination
why does inequality matter
too little inequality:
reduces motivation, slows economic growth, reduces incentives to take risk, limits charity
too much inequality: reduces motivation, limits economic mobility, limits healthcare, slows economic growth, divides society, distorts politics, reduces political participation, reduces investment in public goods
what policies immediately address inequality
progressive taxation and transfer programmes funding infrastructure and education
strengthen labour laws
targeted social programs - food assistance, social housing
policies that support sustainable and inclusive economic growth
how do you address inequality long term
access to resources like education, housing, opportunities to build wealth
what is unemployment insurance
government transfer to unemployed workers
reduces cost and gives incentive to search for a job longer
to be efficient - should be for a limited time and less income than working
how do health and safety regs reduce labour demand
increase employer costs and reduce productivity
reduction in demand will increase unemployment and lower wages
what are impediments to full employment
european labour markets are more regulated - high minimum wage, little flexibility in benefits and more powerful unions
reduces employment in europe
