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ECON102 > Week 17 - Labour Market > Flashcards

Week 17 - Labour Market Flashcards

1
Q

What has been the trend in real wage growth in industrialised countries?

A

Industrialised countries experienced significant real wage growth throughout the 20th century.

Real earnings (adjusted for inflation) have increased steadily due to improvements in productivity, technology, and economic expansion.

In the U.S., 2018 real earnings were:
Twice the real earnings of 1960.
Five times the real earnings of 1929.

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2
Q

What factors contributed to real wage growth in the 20th century?

A

Technological advancements increased worker productivity.

Education improvements led to a more skilled workforce.
Industrialisation and urbanisation created higher-paying jobs.

Economic policies (such as labor protections and minimum wage laws) supported higher wages.

Global trade and economic expansion provided access to new markets and resources.

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3
Q

Why did U.S. real earnings in 2018 double compared to 1960?

A

Productivity growth – More output per worker due to better technology and automation.

Increased capital investment – More machines, tools, and infrastructure improved efficiency.

Economic expansion – Higher GDP and rising industries created higher-paying jobs.

Strong labor markets – Unions, labor laws, and demand for skilled workers contributed to wage increases.

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4
Q

Why were U.S. real earnings in 2018 five times higher than in 1929?

A

The Great Depression (1929-1939) caused extreme wage stagnation and high unemployment.

Post-WWII economic boom (1945-1970) led to massive wage growth and middle-class expansion.

Innovation and automation boosted industrial and service-sector wages.

Globalisation opened new markets, increasing job opportunities and income levels.

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5
Q

What challenges might slow real wage growth in the future?

A

Automation and AI replacing traditional jobs.

Wage stagnation due to outsourcing and gig economy growth.

Inflation and cost of living increases reducing purchasing power.

Weaker labor protections in some economies, leading to income inequality.

While wages have grown historically, future trends depend on technological, economic, and policy changes.

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6
Q

What are the 5 trends?

A
  1. Real wage growth in industrialised countries
  2. Real wage growth stagnation since 1973
  3. Increased wage inequality in US
  4. The number of people with jobs has grown in the past 50 years
  5. Western Europe has suffered higher unemployment than the U.S.
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7
Q

What happened to real wage growth after 1973?

A

Real wage growth stagnated after 1973, slowing compared to earlier decades.

Fastest growth occurred in the 1960s and early 1970s.

Despite stagnation, the number of employed people and the percentage of the population employed increased.

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8
Q

How did real wage growth rates change over different periods?

A

Real wage growth slowed significantly after 1973:

1960 – 1973 → 2.5% per year (strong growth).
1973 – 1995 → 0.9% per year (slowdown begins).
1996 – 2007 → 1.8% per year (moderate recovery).
2007 – 2016 → 0.7% per year (stagnation continues).
1970 – 2012 → 1.1% per year (long-term trend).

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9
Q

Why did real wage growth slow after 1973?

A

Oil shocks (1973, 1979) → Higher energy costs slowed economic growth.
Decline of manufacturing → Shift to lower-wage service jobs.
Globalisation → Increased competition from low-wage countries.
Decline of unions → Weaker bargaining power for workers.
Technology & automation → Replaced many middle-class jobs.
Rising income inequality → Wage growth benefited high earners more than average workers.

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10
Q

Why did employment increase despite wage stagnation?

A

More women entering the workforce increased total employment.

Shift to service jobs created more job opportunities.

Population growth naturally expanded the labor force.

More part-time and gig work provided flexible but often lower-paying jobs.

Even though wages grew slowly, the total number of employed people increased.

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11
Q

What factors helped real wage growth recover between 1996–2007?

A

Technology boom (1990s) increased productivity.

Strong economic expansion before the 2008 financial crisis.

Global trade expansion helped high-skill industries.

Increased education levels improved workforce skills.

Despite some recovery, wage growth slowed again after 2007.

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12
Q

What are the challenges to increasing real wage growth in the future?

A

Automation & AI may replace more jobs.

Weak labor protections could limit wage bargaining power.

Inflation vs. wages – If inflation rises faster than wages, purchasing power declines.

Cost of living (housing, healthcare) continues to outpace wage growth.

Economic uncertainty (recessions, pandemics) affects wage stability.

Future wage growth depends on policy decisions, technology, and economic conditions.

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13
Q

What happened to average real weekly earnings of low-income workers in the U.S. between the 1970s and 2018?

A

The average real weekly earnings of workers at the low end of the income distribution decreased.

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14
Q

What happened to the real wages of the best-educated, highest-skilled workers between the 1970s and 2018?

A

Real wages for the best-educated, highest-skilled workers increased during this period.

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15
Q

How much more income do workers with an advanced college degree make compared to high school graduates?

A

Workers with an advanced college degree make twice the income of high school graduates.

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16
Q

How much more income do workers with an advanced college degree make compared to those who did not graduate from high school?

A

Workers with an advanced college degree make three times the income of workers who did not graduate from high school.

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17
Q

What are some factors contributing to wage inequality in the U.S. from the 1970s to 2018?

A

Factors include technological advancements, globalization, and shifts in labor market demand for high-skilled workers, as well as changes in labor policies and the decline of unions.

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18
Q

How did globalisation contribute to wage inequality in the U.S.?

A

Globalisation led to outsourcing of lower-wage manufacturing jobs to countries with cheaper labor, contributing to wage stagnation for low-skilled workers in the U.S.

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19
Q

How did technological advancements impact wage inequality in the U.S.?

A

Technological advancements increased the demand for skilled labor in fields like tech and finance, raising wages for high-skilled workers while reducing demand for lower-skilled jobs.

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20
Q

What role did the decline of unions play in wage inequality in the U.S.?

A

The decline of unions weakened workers’ bargaining power, contributing to slower wage growth for low- and middle-wage workers compared to high-wage workers.

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21
Q

What has happened to the number of people with jobs in the U.S. over the past 50 years?

A

The number of people with jobs has grown in the past 50 years, but the rate of job growth has slowed recently.

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22
Q

What was the employment rate for people over 16 in 1970?

A

In 1970, about 57% of people over 16 had jobs.

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23
Q

What was the employment rate for people over 16 in 2000?

A

By 2000, the employment rate for people over 16 had increased to 64%.

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24
Q

What was the employment rate for people over 16 in 2019?

A

In 2019, the employment rate for people over 16 was 61%.

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25
By what percentage did the number of jobs grow between 1980 and 2000?
The number of jobs grew by 38% between 1980 and 2000.
26
By what percentage did the population grow between 1980 and 2000?
The number of people in the U.S. grew by 27% between 1980 and 2000.
27
What has contributed to the slowdown in the rate of job growth in recent years?
Factors include automation, outsourcing, changes in the labor market, and economic factors such as recessions and slow recoveries.
28
How has unemployment in Western Europe compared to the U.S. between 1990 and 2018?
Western Europe has suffered higher unemployment than the U.S. during this period.
29
What was the unemployment rate in France from 1990 to 2018?
The unemployment rate in France from 1990 to 2018 was 9.9%.
30
What was the unemployment rate in Italy from 1990 to 2018?
The unemployment rate in Italy from 1990 to 2018 was 9.6%.
31
What was the unemployment rate in Spain from 1990 to 2018?
The unemployment rate in Spain from 1990 to 2018 was 16.6%.
32
What was the unemployment rate in the U.S. from 1990 to 2018?
The unemployment rate in the U.S. from 1990 to 2018 was 5.9%.
33
Did other Western European countries experience similar unemployment problems?
Yes, many other Western European countries faced similar unemployment issues during this period.
34
What are some factors contributing to higher unemployment in Western Europe compared to the U.S.?
Factors include stricter labor market regulations, higher levels of government intervention, economic stagnation, and the impact of financial crises.
35
What does supply and demand analysis in the labor market help determine?
Supply and demand analysis helps determine the price of labor (real wages) and the quantity of labor (employment).
36
What does labor market analysis focus on when considering employment?
Labor market analysis focuses on the number of workers employed, not the number of work-hours per year.
37
How is the labor market categorised?
The labor market is an input market where firms buy labor to produce goods and services.
38
What does macroeconomics focus on in relation to the labor market?
Macroeconomics looks at aggregate levels of employment and real wages.
39
What does microeconomics focus on in relation to the labor market?
Microeconomics looks at wage determination for a specific category of workers.
40
What does the demand for labor depend on?
The demand for labor depends on the productivity of workers, the price of the worker’s output, and diminishing returns to labor.
41
How does the price of the worker’s output influence the demand for labor?
A higher real price for the worker’s output increases demand for labor through profit motives. Higher wages can also lead to increased consumer spending, which can boost demand for goods and services and create more jobs.
42
How does the productivity of workers affect the demand for labor?
Greater productivity increases employment demand through cost reduction, increased firm profits, business expansion, and new investments. More productive workers can produce more in the same amount of time, which increases revenues and allows for higher wages.
43
What are diminishing returns to labor?
Diminishing returns to labor occur when, assuming non-labor inputs are held constant, adding one worker increases output but by less than the previous worker added. Adding more labor to a fixed amount of capital can lead to overcrowding or reduced efficiency in the production process.
44
What is the Value of Marginal Product (VMP) of labor?
The Value of Marginal Product (VMP) is the extra revenue generated by adding one more worker to the production process.
45
46
What must be true for a firm to hire an extra worker?
To maximise profits, a firm will hire an extra worker if and only if the Value of Marginal Product (VMP) exceeds the wage paid.
47
How does the VMP change as more workers are hired?
The VMP decreases as more workers are hired, due to diminishing returns to labor.
48
How does the wage affect the number of workers employed?
The lower the wage, the more workers are employed. Firms hire more workers as wages decrease.
49
What happens when wages increase?
Wage increases raise employers' costs, reducing the demand for additional workers. Employers will stop hiring more workers when the wage increase makes it no longer profitable.
50
What shape is the labor demand curve, and why?
The labor demand curve is downward sloping, reflecting the inverse relationship between labor demand and wages. As wages increase, the demand for labor decreases.
51
What causes the demand for labor to shift?
The demand for labor shifts when the value of the marginal product (VMP) of a worker changes. This can happen due to changes in factors like the price of the company’s output, productivity, and more.
52
What are the two main factors that determine the demand (VMP) for labor?
The two main factors are: The price of the company’s output The productivity of the workers
53
How does an increase in market demand affect the demand for labor?
An increase in market demand for a company's output can raise the price of the output, which in turn increases the demand for labor to produce more goods or services.
54
How does the productivity of workers affect labor demand?
Higher worker productivity increases the VMP, which increases the demand for labor. More productive workers generate higher revenues, leading firms to hire more.
55
How do non-labor inputs affect labor demand?
A greater quantity of non-labor inputs (such as capital, technology, or machinery) can enhance worker productivity, which increases the demand for labor.
56
How do organisational changes affect labor demand?
Organisational changes, such as improvements in management or production processes, can increase productivity and efficiency, thereby increasing the demand for labor.
57
How does training and education affect labor demand?
Training and education improve workers' skills and productivity, which increases the VMP and, consequently, the demand for labor.
58
What happens to the demand for labor when the price of a product rises?
When the price of a product rises, the demand for labor shifts to the right, meaning firms are willing to hire more workers.
59
Is there only one demand for labor curve?
No, there is a separate demand for labor curve for each possible output price. The demand curve shifts based on changes in the price of the product.
60
How does an increase in the price of a worker’s output affect the demand for labor?
An increase in the price of a worker's output increases the demand for labor, as firms will want to hire more workers to take advantage of the higher selling price of the product.
61
How does an increase in productivity affect the Value of Marginal Product (VMP)?
An increase in productivity increases the Value of Marginal Product (VMP), as workers can produce more output in the same amount of time.
62
What happens to the labor demand curve when productivity increases?
When productivity increases, the labor demand curve shifts to the right, as firms need more workers to take advantage of higher productivity.
63
What does a rightward shift of the labor demand curve mean for employers?
A rightward shift in the labor demand curve means employers will hire more workers at any given wage due to increased productivity.
64
How does labor demand change after an increase in productivity?
After an increase in productivity, the labor demand curve shifts to the right, reflecting higher demand for labor.
65
How does labor demand look before an increase in productivity?
Before an increase in productivity, the labor demand curve is at a lower level, indicating fewer workers are hired at any given wage compared to after the productivity increase.
66
What is a reservation wage?
A reservation wage is the lowest wage a worker would accept for a given job, considering the trade-off between work and leisure.
67
What is the opportunity cost of working?
The opportunity cost of working is the value of the leisure activity a worker sacrifices by choosing to work.
68
How does work compensate for lost leisure?
Work compensates workers for lost leisure by offering a wage that reflects the value of the time spent working rather than enjoying leisure activities.
69
What happens if working conditions are unpleasant or dangerous?
If working conditions are unpleasant or dangerous, workers will require a wage premium to compensate for the additional risk or discomfort.
70
What principle explains the decision-making process in individual labor supply?
The Cost-Benefit Principle is at work, where workers weigh the benefits of the wage offered against the costs of losing leisure time or dealing with unpleasant conditions.
71
What are the macroeconomic determinants of labor supply?
The macroeconomic determinants of labor supply include: The size of the working-age population Domestic birthrate Immigration and emigration The ages when people enter and retire from the workforce
72
How do younger and older workers affect the labor supply?
Younger workers may be more willing to supply labor and work longer hours, while older workers may be more likely to retire or reduce their work hours.
73
How does the share of the working-age population willing to work impact labor supply?
The share of the working-age population willing to work affects the aggregate labor supply. This can be influenced by cultural, social, and economic factors that determine work participation.
74
How does the wage rate affect labor supply?
As the wage rate increases, workers may be more willing to supply labor and work longer hours to earn more money, making labor supply more responsive to higher wages.
75
How does education and training influence labor supply?
Education and training can increase workers' skills and knowledge, making them more productive and able to command higher wages, thus influencing the labor supply by making workers more attractive to employers.
76
Why does the labor supply curve slope upward?
The labor supply curve slopes upward because, at a higher real wage, more people are willing to work, as the higher wages make labor more attractive.
77
What causes a shift in the labor supply curve?
A shift in the labor supply curve is caused by any change in the number of workers willing to work at each wage.
78
How does an increase or decrease in the working-age population affect labor supply?
An increase in the working-age population shifts the labor supply curve to the right, while a decrease in the working-age population shifts it to the left.
79
How does the share of the working-age population willing to work affect labor supply?
An increase in the share of the working-age population willing to work shifts the labor supply curve to the right, while a decrease shifts it to the left.
80
How does job availability affect the labor supply curve?
When job opportunities are plentiful, workers may be more willing to supply labor and work longer hours, causing the labor supply curve to shift to the right.
81
How does education and training affect labor supply?
Education and training can increase workers' skills, making them more attractive to employers. This can increase the labor supply by shifting the labor supply curve to the right.
82
Trend 1: increasing real wages What has driven the sustained growth in productivity in industrialised countries during the 20th century?
Sustained growth in productivity in industrialised countries has been driven by technological progress and increases in capital.
83
How has productivity growth affected labor demand?
Increased productivity has led to higher demand for labor, as firms require more workers to take advantage of greater output potential.
84
What effect has productivity growth had on both real wages and employment?
Productivity growth has resulted in both higher real wages and increased employment, as higher productivity enables businesses to pay higher wages while expanding their workforce.
85
What are the two main factors that contributed to productivity increases in the 20th century?
The two main factors contributing to productivity increases were technological progress and increases in capital.
86
Trend 2: Stagnated wage growth since 1970 What are the two possible reasons for stagnated growth in real wages since 1970?
Stagnated growth in real wages could be due to either slower growth in demand for labor or faster growth in the supply of labor.
87
How do productivity growth and real wages relate to each other?
Productivity growth and real wages typically move together. When productivity increases, real wages tend to rise as well.
88
Why does slower demand growth explain slower wage growth?
Slower demand growth for labor leads to slower wage growth because firms have less need to hire workers, reducing upward pressure on wages.
89
Why doesn't slower demand growth explain rapid growth in employment?
Slower demand growth doesn’t explain rapid employment growth because labor supply must have increased to account for the rise in employment.
90
What are the factors that contributed to the increase in the supply of labor?
The supply of labor increased due to factors such as: Increased participation by women The Baby Boom generation entering the workforce High rates of immigration
91
What will happen to labor supply growth in the future?
Labor supply growth will slow in the future, partly depending on whether productivity growth continues to decline.
92
Trend 3: Increase wage inequality in the US What is the main benefit of globalisation?
The main benefit of globalisation is increased specialisation and efficiency, as markets expand to include a worldwide supply of goods and services.
93
What is the Principle of Comparative Advantage?
The Principle of Comparative Advantage states that countries should specialise in producing goods and services that they can produce at a lower cost than other countries, leading to increased efficiency and productivity.
94
What happens when countries specialise according to their comparative advantages?
When countries specialise, they become more efficient and productive, which can lead to increased economic growth and welfare.
95
How does globalisation affect domestic sectors?
Globalisation can lead to some domestic sectors shrinking as goods produced abroad become more competitive, potentially causing job losses in certain industries due to increased foreign competition.
96
What environmental concerns arise from globalisation?
Globalisation can raise environmental concerns related to the production and transportation of goods across borders, increasing carbon footprints and other environmental impacts.
97
What do countries need to consider when dealing with globalisation?
Countries need to balance the potential benefits and risks of globalisation and trade, designing policies that support sustainable and inclusive growth while addressing the challenges of competition and environmental impact.
98
What is globalisation?
Globalisation refers to the flow of goods, services, capital, and labor across international borders, leading to increased interconnectedness among countries.
99
How does globalisation affect inequality?
Globalisation affects inequality through its differential impact on low-skilled workers, often lowering their wages relative to those of high-skilled workers.
100
How does globalisation affect wages in the United States?
In the United States, globalisation is thought to lower the wages of low-skilled and low-wage workers, while the wages of high-skilled workers tend to rise or remain stable.
101
How has increased wage inequality been observed in the U.S.?
Increased wage inequality in the U.S. has been observed as the wages of high-skilled workers, particularly in industries like software, have risen, while wages for low-skilled workers, especially in industries like textiles, have stagnated or declined.
102
How has the textile industry been impacted by wage inequality?
The textile industry, traditionally reliant on low-skilled labor, has faced wage stagnation or declines due to globalisation, with many jobs being outsourced to countries with lower labor costs.
103
How has the software industry been impacted by wage inequality?
The software industry has seen rising wages for high-skilled workers due to high demand for technical expertise and innovation, contributing to increased wage inequality between skilled and unskilled labor.
104
What role does globalisation play in wage inequality in these industries?
Globalisation contributes to wage inequality by shifting manufacturing jobs (like in textiles) to countries with lower labor costs, while industries with higher skill demands (like software) benefit from higher wages in the U.S. due to global competition for skilled labor.
105
How does the change in wages in importing and exporting industries affect wage inequality?
When wages in importing industries fall and wages in exporting industries rise, wage inequality increases, as low-skilled workers in import-competing industries experience wage declines while high-skilled workers in export-driven industries see wage increases.
106
Which industries in the U.S. face the toughest international competition?
Low-skill industries in the U.S. face the toughest international competition, as they are more vulnerable to outsourcing and imports from countries with lower labor costs.
107
How does political resistance to free trade relate to wage inequality?
Political resistance to free trade grows when wage inequality increases, particularly as workers in industries that face international competition (like textiles) experience job losses or wage stagnation.
108
What is worker mobility?
Worker mobility refers to the movement of workers between jobs, firms, and industries, allowing them to seek better opportunities or adjust to changes in labor demand.
109
How do market incentives impact workers in low-skill industries?
Market incentives, such as higher wages in growing sectors like software, encourage workers to move out of low-skill industries like textiles and into higher-skill industries with better pay.
110
How can governments assist workers transitioning between industries?
Governments can provide transition aid to assist workers in moving from declining industries (like textiles) to growing sectors (like software), through programs such as retraining, education, and financial support.
111
How can technological change be a source of increasing wage inequality?
Technological change can increase wage inequality if it favours higher-skilled or better-educated workers, as new innovations may make the skills of lower-skilled workers less valuable.
112
How do technological innovations impact the value of old skills?
Technological innovations, such as the introduction of calculators and computers, can render old skills less valuable, as they automate or replace tasks that were previously performed by lower-skilled workers.
113
What is skill-biased technological change?
Skill-biased technological change refers to technological advancements that affect the marginal products of higher-skilled workers differently from those of lower-skilled workers, often increasing the demand for higher-skilled labor.
114
How have recent technological changes favoured higher-skilled workers?
Recent technological changes, such as automation and robotics in manufacturing, have favoured higher-skilled workers who can operate, program, and maintain new technologies, while reducing the demand for low-skilled workers.
115
How has technological change affected automobile production lines?
Automobile production lines increasingly use robots, which require workers skilled in programming and operating robots, rather than workers who can only perform manual tasks on the line.

ECON102 (21 decks)

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