3.5 The Labour Market

?
What is the demand for labour?
The quantity of labour that employees wish to hire at each possible wage rate
1 of 54
What is derived demand?
Demand for a factor of production as a result of demand for the product
Demand for labour is derived demand
2 of 54
What is MRP?
Marginal revenue product
The additional revenue gained by each worker
MRP = marginal output x price
3 of 54
What are the factors influencing the demand for labour?
Wage rates
Demand for final good/service
Price of capital/technology
Wages in other countries
Regulation
State of the economy
4 of 54
How do wage rates affect demand for labour?
Wage rate is the price of labour
When wages increase, the demand for labour decreases
5 of 54
How does the demand for the final good/service affect demand for labour?
Demand for labour is derived
Demand for labour is dependent on tje demand for the final product
6 of 54
How does the price of capital/technology affect demand for labour?
Capital and labour are substitutes
If capital is cheaper, demand for labour falls
Firms rather capital as it is more efficient
7 of 54
How does wages in other countries affect demand for labour?
If UK wages are too high, demand for labour falls
Firms save costs by employing in other countries
8 of 54
How does regulation affect demand for labour?
High regulation in the labour market discourages firms from hiring
Costly and time consuming
9 of 54
How does the state of the economy affect demand for labour?
State of the economy affects demand for the final good/service
Therefore affects demand for labour
10 of 54
What is the PED of labour?
Responiveness of demand for labour to change in wage rate
11 of 54
What are the factors affecting the PED of labour?
PED of final product
Proportion of wages to total cost of production
Substitutes to labour
Time scale
12 of 54
How does the PED of final product affect the PED of labour?
Demand for labour is derived demand
PED of product ∝ PED of labour
13 of 54
How does the proportion of wages to total cost of production affect the PED of labour?
If wages are a high proportion of COP, higher wage rate causes COP to increase massively (elastic PED)
14 of 54
How does the substitutes affect the PED of labour?
Substitutes for labour are machinery or foreign labour
More substitutes, more elastic PED
15 of 54
How does the time scale affect the PED of labour?
Short run, inelastic
Long run, elastic (capital is variable, substitutes)
16 of 54
What is the supply of labour?
Ability and willingness of peopel to make themselves available to work at different wage rates
17 of 54
What are the factors influencing supply of labour?
Wages
Population + distribution of age
Non-monetary benefits
Education/qualifications
Trade unions
Government legislation
18 of 54
How does wages affect the supply of labour?
Wages are the price of labour
When wages increase, the incentive for labour increases, supply increases
19 of 54
What is the supply curve for an individual?
Sideways parabola, open leftward
Wage rate against quantity of labour
Shows wages increase, hours increase at first
At a certain point hours decrease
20 of 54
How does population and distribution of age affect the supply of labour?
Large population = high supply of labour
People need to be of working age (18 - 64); aging population has less supply
Migration increases supply
21 of 54
How does non-monetary benefits affect the supply of labour?
Job satisfaction affects supply of labour
Perks (fringe benefits) make jobs more attractive
22 of 54
How does education/qualifications affect the supply of labour?
Higher levels of education leads to higher supply of skilled workers
23 of 54
How do trade unions affect the supply of labour?
TU introduce barriers to entry
TU restrict the supply of labour
24 of 54
How does government legislation affect the supply of labour?
E.g increasing scope of working age/retirement age
25 of 54
When is there market failure in the labour market?
When the labour market is not a perfectly free market
Due to occupational and geographical immobility
26 of 54
What is occupational immobility?
Lack of transferable skills for workers to find a new job
Causes structural
27 of 54
What is geographical immobility?
Difficult to move/travel due to high moving costs or high living costs
28 of 54
What does immobility cause?
Causes excess demand in one area, and excess supply in another area
29 of 54
What is the PES of labour?
Responsiveness of supply of labour to a change in wage rates
30 of 54
What are the factors affecting PES of labour?
Level of training/qualifications
Availability of suitable labour in other countries
Time scale
31 of 54
How does the level of training/qualifications affect the PES of labour?
If level of training/qualifications needed is at a high level, PES inelastic
32 of 54
How does the availability of suitable labour in other industries affect the PES of labour?
If labour can be easily transferred between industries, PES elastic
33 of 54
How does the time scale affect the PES of labour?
Short run, inelastic PES
Long run, elastic PES
34 of 54
Perfectly competitive labour market
Wages determined by supply + demand
All workers paid the same (otherwise workers would go elsewhere, perfect knowledge)
35 of 54
Monopsony in the labour market
One buyer of labour
To increase workforce, firms pay higher wage rate
Higher wages for one worker means higher wage for all workers
MC curve above S=AC; costs more to employ an additional worker than average cost of labour
36 of 54
Monopoly in the labour market
Trade unions act as the sole seller of labour
To increase wages;
1) TU set barriers to entry to restrict supply
2) TU set wages at a specific rate, and ensure no worker works for less - creates kinked supply curve
37 of 54
Bilateral monopoly in the labour market
Monopoly and monopsony
Firm is monopsonist, TU is monopolist
Wage set depends on bargaining power (recession; TU low bargaining power, boom; TU high bargaining power)
38 of 54
What are some issues in the labour market?
Skills shortages
Young workers
Retirement
Zero hour contracts
Gig economy
39 of 54
Skills shortages in the labour market
Immobility causes excess supply and demand in different areas
40 of 54
Young workers in the labour market
During recessions, firms unlikely to employ new workers
Youth employement suffers
41 of 54
Retirement in the labour market
Aging population causes retirement age to increase - negative effect on youth employment
Increases due to large burden on government budget
42 of 54
Zero hour contracts in the labour market
Workers do not know how much they will earn a week
Workers have little notice when they are needed
43 of 54
Gig economy in the labour market
Those who are self-employed or those on short term contracts
Workers' rights are unclear and pay is unreliable
44 of 54
How can the government intervene in the labour market?
Minimum/maximum wages
Public sector wage setting
Tackling immobility
45 of 54
What are the arguments for the national minimum wage?
Poverty falls
Gender pay gap falls
Exploitation falls
46 of 54
What are the arguments against the national minimum wage?
COP rises, prices rise
No consideration of regional differences
47 of 54
How does PED and PES of labour influence jobs when the NLW was introduced?
PED + PES elastic, NLW causes massive job losses
PED + PES inelastic, NLW causes small job losses
48 of 54
Why would the government impose maximum wages?
Helps reduce inquality
Leads to excess demand of labour - people do not think the smaller salary matches the stress/responsibility of the job
49 of 54
How does the PED and PES of labour influence jobs when maximum wages are introduced?
PED + PES inelastic, maximum wages have little impact
PED + PES elastic, maximum wages have large impact
50 of 54
Why do the government set public sector wages?
In SR, government set wages to help budget
In LR, government must increase wages - workers will move to the private sector
51 of 54
How to tackle geographical immobility?
Increase supply of houses
Increase transport infrastructure
National advertising
52 of 54
How to tackle occupational immobility?
Increase vocational training
Encourage further education
Encourage firms to spend more on training
53 of 54
What is the type of bargaining used by trade unions?
Collective bargaining
54 of 54

Other cards in this set

Card 2

Front

What is derived demand?

Back

Demand for a factor of production as a result of demand for the product
Demand for labour is derived demand

Card 3

Front

What is MRP?

Back

Preview of the front of card 3

Card 4

Front

What are the factors influencing the demand for labour?

Back

Preview of the front of card 4

Card 5

Front

How do wage rates affect demand for labour?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all The labour market resources »