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Economics ­ The Labour Market: Wage Determination (11.12.12)

The Labour Market: Wage Determination
Pay in a particular labour market is influenced by a number of factors.

Along with supply & demand, these include the influence of trade unions and professional
organisations, government intervention and esteem.

Demand & Supply:

The forces…

Page 2

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The amount of economic rent earned by individual workers will differ:

The first worker taken on would have been prepared to work for much less than the
wage rate actually paid (a high proportion of his/her earnings would be economic
The last worker employed would have been prepared to…

Page 3

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This effectively creates a new supply curve ­ no workers will be willing to work for any
wage less than WM

Employment will fall from EC to EM though ­ Some workers will be able to benefit from the
higher wages, others may lose their jobs (Excess supply of ABC)…

Page 4

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Higher pay = Incentive to work more hours
Increased incomes = spend more on consumer goods & services = Stimulate AD in
economy = Economic Growth = Demand for labour increases
Can work with management & employers to improve efficiency and competitiveness
May prevent the introduction of new technology which…

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In the diagram Eq workers are taken on, but the monopsonist can employ these workers at
an average wage rate of Wq; a pay level below the MRP of Labour

The monopolist is `exploiting' labour by not paying them the full value of their MRP which is
essentially what the…

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NMW increases the pay rate

Reduces the number of people

Leads to an XS supply of labour

Evaluation of NMW:

Increases Unemployment = Government Failure
Boost staff productivity as they are more motivated

Force some employers to become too uncompetitive = closure of companies

Wage Differentials between particular groups:…

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Part-time & full-time workers:

Part-time workers tend to receive lower hourly rates than full-time workers
The supply of people willing and able to work part time is relatively high in
comparison to demand
Part-time workers are also less likely to receive training than full time workers =
lower productivity

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The costs of negative discrimination:

Will lead to lower pay for the groups who experience the negative discrimination
Such groups will find it harder to find work, or may result to taking less demanding
jobs than they are qualified to do
May also not be considered for promotions
Firms themselves…




This is a well written summary of how wages are determined. It can be adapted for more interactive learners or used as notes for reading.

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