The Labour market

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  • Created by: Ellie
  • Created on: 26-05-15 16:27
What are the factors influencing the demand for labour?
Demand for output produced, the price of labour, productivity, price of alternative factors of production, supplementary labour costs
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What is the equilibrium for labour?
When the marginal cost of labour = the marginal revenue product
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What does a firm need to think about when deciding whether or not to employ someone?
How much will total output rise?, how much will total revenue will rise when the extra output is sold in the goods market? how much will total production costs rise?
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What does MRP =?
Mp x MR
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When do firms demand labour?
When MRP=MC
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Define the elasticity of demand for labour and give the equation
The responsiveness of the quantity of labour demanded to the change in wage rate = % change in quantity of labour demanded / % change in wage rate
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What are the determinants for the elasticity of demand for labour?
Time (more elastic in the long run), The availability of substitutes (workers can be replaced by machines), The elasticity of demand for the product, the proportion of labour cost to total cost (> TC labour >elasticity of demand)
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What are the moneytary reasons for supplying labour?
financial rewards, wages, bonuses,
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What are the none moneytary reasons for supplying labour?
The none financial rewards of a job, discounts, ease of job, passion, holiday, ability, location
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What is the link between moneytary rewards and supply?
Jobs with high none moneytary rewards will have a higher supply than those with low reards
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Define the elasticity of supply of labour
The responsiveness of the quantity of labour supplied to a change in wage rate
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What does the elasticity of supply of labour depend on?
Time (more elastic in the long run as there's more time to find alternatives), Training (the longer the training period the more elastic), Skills and qualifications required, Sense of vocation
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Explain the backward bending supply of labour
This suggests at higher wage levels an increase in wages leads to a reduction in hours supplied
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Describe the substitution effect
This dominates at lower wage rates as wages rise workers substitute an extra hour of leisure with an extra hour of work
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Describe the income effect
Once a worker has achieved their target level of income they can work fewer hours for the same overall pay
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How does taxation effect the supply curve of labour?
If the supply curve is upward sloping an increase in tax disincentivises worker if the supply curve is backward bending an increase in tax incentivises workers
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What are the conditions for perfectly competitive labour markets?
Many firms, Perfect information, Firms offering identical jobs, Many workers with homogeneous skills, No buyer or seller can influence the ruling market price, Free entry and exit
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When should a firm hire more or less workers and where is the profit maximising level of employment?
if MRP > W more workers should be hired, if MRP < W less workers should be hired. Profit maximisation occurs when MRP =W
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Evaluate perfectly competitive labour markets
In reality labour skills are not homogeneous, there is no perfect information, firms don't offer identical jobs, there are barriers to entry
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Define Monopsony and give an example of a monopsony labour market
Monopsony means there is only one employer in the market e.g. the government (NHS, Education) , farming
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Where is a monopsonist level of employment
Where MC= AC
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Define a trade union
An organisation of workers whos aim is to improve the pay and other conditions of work of its members
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Define collective bargaining
The main way trade unions achieve their aims, involves the pay for a group of workers being discussed through a single negotiation
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What assumptions are made when analysing the influence of trade unions?
It is a monopsony labour supplier, It is able to keep none union workers out of the labour market and prevent workers supplying labour below the TU wage rate, it can fix the wage rate. (these are unrealistic assumptions)
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Define closed shop
This is something that keeps non union workers out of the labour market
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Define national minimum wage
The lowest wage rate at which employers could employ their workers.
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When do wage differentials exist?
When labour markets are not perfectly competitive and differences in wages occur between different groups of people
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What are the benefits of wage differentials?
Incentives, encourages people to work, Encourages enterprise, Promotes efficient resource allocation, The trickle down effect
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Why do wage differentials exist?
Demand and supply (wages are high when demand is high supply is low and they're both inelastic), Relative bargaining strength, Government policy (ageing population more NHS demand), Esteem (e.g. judge), Difference between skilled and unskilled worker
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What are the differences between male and female workers?
Females have a lower degree of attachment to the labour force, They are more likely to move in and out of the labour force and take large career breaks, Time out lowers MRP due to less experience, the age women leave is the age most progress
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What are the differences between different ethnic groups?
Workers from minority groups are less qualified suggesting a lower MRP, Immigrants may speak English as a second language reducing productivity and employability, They are often concentrated in poor areas where local economy lowers MRP,Discrimination
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What are the differences between full and part time workers?
Part time workers get paid less in total than full time workers due to shorter hours, the hourly rate of part time workers is less than in full time due to higher demand for part time work
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Define Wage discrimination, positive discrimination and negative discrimination
Wage discrimination is when workers are paid different amounts for doing the same job, Negative discrimination is when a group of workers is treated less favourably, positive discrimination is when a group of workers is treated more favourably
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What are the costs of negative discrimination for workers?
lower pay, harder to find work, will settle for a lower skilled job than capable of doing
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What are the costs of negative discrimination for a firm?
Fewer workers to chose from, increases production costs, reduces international competitiveness, higher costs passed on to consumer, loss of reputation (vicious circle)
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What are the costs of negative discrimination for the economy?
Increased government spending on welfare benefits, opportunity cost of time money /spent on monitoring legislation
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Define income
Income is a flow of factor incomes such as wages and earnings from work
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Define Wealth
Wealth is a stock of financial and real assets such as property
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What are the causes of the distribution between income and wealth?
Differences in pay in different jobs and industries, The effects of unemployment, falling relative incomes of people dependent on state benefits, changes to the tax and benefit system
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Explain the Lorenz curve
A measure of income and wealth the further the curve lies below the line of equality the more unequal the distribution of income and wealth
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Explain the Gini coefficient
A measure of income inequality it condenses the income distribution for a country into a number between 0 and 1. The higher the number the greater the inequality
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What is the equation of the Gini coefficient?
Gini = Area of section A/ Area of section A + Area of section B
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What are the costs of a more unequal society?
It would have negative impacts on growth, It would limit the overall possible growth and means growth that occurs doesn't benefit the majority of the population, the more unequal the society the more inefficiency can cause a reduction in demand
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What are the costs of a more unequal society?
If firms have monopoly power this leads to the redistribution of income from consumers to shareholders, unfair distribution occurs when some firms have monopsony powers, Income has a diminishing marginal utility ( more you earn the less essential)
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What are the costs of a more unequal society?
It can lead to social friction which can cause riots and crime, It can cause unemployment and relative poverty
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What are the benefits of a more unequal society?
Some wealthy members of society contribute to funding and charities if it were less equal more money would be donated, There would be less incentives for entrepreneurs to set up their own business leading to decreased innovation shifting AD and AS
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What are the benefits of a more unequal society?
People should receive higher wages for working harder and this can contribute to higher national output as it incentivises workers to increase productivity
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What are the benefits of a more unequal society?
Trickle down effect ( By earning money and setting up a business jobs are created, the employed spend money, increasing AD), If their skills merit it people deserve higher incomes.
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Card 2

Front

What is the equilibrium for labour?

Back

When the marginal cost of labour = the marginal revenue product

Card 3

Front

What does a firm need to think about when deciding whether or not to employ someone?

Back

Preview of the front of card 3

Card 4

Front

What does MRP =?

Back

Preview of the front of card 4

Card 5

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When do firms demand labour?

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