Yr2 The Labour Market Flashcards
PART 1
THE DEMAND FOR LABOUR, MARGINAL PRODUCTIVITY THEORY
Equation for demand for labour
MRP = MPL x MR
What does MPL stand for and what does it mean?
Marginal Product of Labour
- addition to a firms total output brought about by employing one more worker
What does MR stand for?
Marginal Revenue
What does MRP stand for and what does it mean?
Marginal Revenue Product for Labour
- monetary value of the addition to a firms’ total output brought about by employing one more worker
What assumption is made by the demand for labour curve?
Everyones’ wages are the same
Factors influencing demand for labour
- The wage rate > real wage rate inflation spiral
- Demand for the product
- Productivity of labour
- Profitability of a firm
- Substitutes
- The number of ‘buyers’ of labour
What is the elasticity of the demand for labour?
The extent to which demand will contract or expand as a result of a change in the WR
Equation for the elasticity of the demand for labour?
% chance in the QofL demanded / % change WR
What creates a more elastic or inelastic demand for labour?
ELASTIC
- demand for product is elastic
- wage accounts for a significant proportion of TC
- labour is close to homogenous
- long run
INELASTIC
- labour is highly skilled and specialised
- labour use complex equipment which is difficult to source
- short in
- demand for product is inelastic
Factors influencing elasticity of demand for labour
- PED of the product
- Proportion of the TC made up of wage costs
- Ease with which labour can be substituted by other factors
- Elasticity of supply of complementary factors
- Time period
Evaluation points of elasticity of demand for labour
- Unions which have strong bargaining power represent labour which is inelastic
- Gov take elasticity of demand for labour into account when making NMW decisions
- Employment subsidies may be used to encourage employment of unskilled workers
PART 2
INFLUENCES UPON THE SUPPLY OF LABOUR TO DIFFERENT MARKETS
What is the supply of labour?
number of workers willing and able to work, multiplied by the hours they are willing and able to work
What two different effects occur on the supply of labour curve for an individual and explain them
- Substitution effect
- higher wages make worm more attractive than leisure
- more wiling and able to work - Income effect
- higher wages means workers can achieve target income by working fewer hours
Factors affecting supply of labour?
- Wage rate
- Size of working population
- Migration
- Peoples’ preferences for work
- Net advantages for working
- Work and leisure
- Length of training
- Barriers to entry
- Trade unions
- Tax and benefit incentives and disincentives
- Labour subsidies
Elasticity of the supply of labour definition
measures the extent to which labour supply responds to a change in the WR in a given time period
Elasticity of the supply of labour Equation
% change QS of labour / % change WR
Factors affecting the elasticity of supply
- Specific skills required for the job
- Length of training / educational requirements
- If the role has a significant vocational aspect
- Pool of labour for a specific job role
- Time period under consideration
What is labour market flexibility?
The speed with which the labour market can adjust to the changes in the economy or industry in question
What are the 4 forms of labour market flexibility linked to supply?
- Internal numerical flexibility
- ability to change the hours and days worked, the ability to do flexi-time, part time etc - Functional or task flexibility
- ability to move employees between different tasks, jobs and locations. Can be achieved through outsourcing / increasing skills etc - Financial flexibility
- ability to change wages easily, or pay different workers different amounts, usually according to changes in demand and supply of workers - Financial numerical flexibility
- ability to change the number of people trained / working in a particular occupation or a particular firm
PART 3
THE DETERMINATION OF RELATIVE WAGE RATES AND LEVELS OF EMPLOYMENT IN PERFECTLY COMPETITIVE MARKETS
PART 4
THE DETERMINANTS OF RELATIVE WAY RATES AND EMPLOYMENT IN IMPERFECTLY COMPETITIVE LABOUR MARKETS
What is the definition of a monopsony?
An imperfect labour market where the firm is a monopoly / single buyer of labour e.g. in the UK, the NHS is a dominant buyer of doctors and nurses
What occurs with wage determination in a monopsony?
- set employment where MRP = MCl
- pay WR at the corresponding point on the labour curve
What intervention is done by the government and/or trade unions?
- subsidies to competitors + competition policy
- minimum wages (avoid unemployment)
- incr taxes, incr gov rev, incr spending on the NHS
What are the evaluation points of gov interventions of monopsony?
- Poorly focussed
- has to be implemented in the whole market (distort competitive equilibrium) - Ineffective in industries where monopsony wage is above minimum but below MRP
What is a bilateral monopoly?
Monopoly power of a trade union enables it to achieve higher wages and higher employment, without impacting the other labour markets, in the way a minimum wage would
PART 5
THE INFLUENCE OF TRADE UNIONS IN DETERMINING WAGES AND LEVEL OF EMPLOYMENT
What is a trade union?
An organisation of employees whose primary purpose is to protect and advance the economic interest of its members by negotiating wage rate and employment conditions
What are the 5 roles of a trade union?
- Protect and improve income
- Provide or improve job security
- Protect against unfair dismissal and other issues relating to employment legislation
- Lobby for better working conditions
- Support on a range of work related issues
Two main functions of a trade union?
- Represent - represent and protect interests of employees
- Negotiate - negotiate on behalf of employees with employer
How effective is a trade union in a competitive market compared with a monopsony?
COMPETITIVE
- causes unemployment as acts as a minimum wage
MONOPSONY
- far more effective
Advantages of a trade union
- Counter balance monopsony
- bargain for higher wages - Represent workers
- employment tribunals - Productivity deals
- help bring in new practises - Co-operation
- bring workers closer to management and represent interests - Efficient wage
- incr motivation and productivity of workers
Disadvantages of trade unions
- Unemployment
- pushing wages above equilibrium - Cost push inflation
- 1970s - Time lost to strike
- Confrontation
- creation of confrontational attitudes (disputes and poor morale) - Less relevant
- gig economy
Example of action influenced by Trade Unions
RMT (National Union of Rail, Maritime and Transport workers)
- strike by train managers at Avanti West Coast
- 31/12/24 and 02/01/25 over a dispute about enhanced pay for rest day working
PART 6
THE NATIONAL MINIMUM WAGE
What is the minimum wage?
Lowest wage permitted by law or special agreements
When was the minimum wage introduced and what was the level at the time?
1999 > £3.60 aged 22+
When was the national living wage introduced and for what age groups? (What are the changes since?)
2015 > 25+
April 2016 > 21+ £7.20
Where does the minimum wage go on an illustration?
Above equilibrium
What is the key drawback of a minimum wage?
Unemployment due to excess labour supply
What are the evaluation points of a minimum wage?
- incr minimum wage can lead to unemployment
- needs to be just above equilibrium (magnitude)
- can cause cost push inflation > real wage price spiral
- above equilibrium so inefficient
PART 7
DISCRIMINATION IN THE LABOUR MARKET
What are the 4 key grounds for discrimination
- age - gender - disability - race
Notes on the gender pay gap
- women earn 75-80% of the level of men
- 2024 > 13.4% pay gap
- not much of a difference in full time workers in 20s and 30s
- gap is smaller in woman dominated industries
- smaller gap in public sector
- little difference in part time in private sector (large for public)
Examples of law and legislation to correct discrimination
1970: Equal Pay Act
1975: Sex Discrimination
2010: Equality Act
2017: Law passed that employers need to publish gender pay gap
What do you do on a diagram to illustrate discrimination
a lower demand curve for the demographic being discriminated against
What are the differences in the demand and supply of labour curves for skilled labour?
Unskilled
- more shallow (elastic) supply and demand
Skilled
- more steep (inelastic) supply and demand
What are some policies that could be used to reduce the gender pay gap?
- Enforce paternity leave
- Subsidise childcare
- Allow babies in the office
- Let parents work from home
- Give women a pay rise
- Include women in shortlists for recruitment and promotions
- Encourage salary negotiations by showing salary ranges
- Introduce transparency to promotion, pay and reward processes
