Theme 3.5 - Labour Market

Question 1

3.5.1 - What is the demand curve for labour?

Answer 1

Shows the quantity of labour that employers would wish to hire at each possible wage rate

Question 2

3.5.1 - What are the factors influencing demand for labour?

Answer 2

• wage rates increase - demand contracts
• demand for the product - no demand for product=no d for labour
• price of other factors of production - switch to machinery if cheap
• wages in other countries - employed were wages low
• technology - improvements = lose of jobs
• regulation - high discourages hiring - costly

Question 3

3.5.1 - What is derived demand?

Answer 3

• demand for labour is derived from demand for the product that the labour produces

Question 4

3.5.2 - What is the supply of labour?

Answer 4

Shows the ability and willingness of people to make themselves available to work at different wage rates

Question 5

3.5.2 - What are factors influencing supply of labour?

Answer 5

• wages
• population and distribution of age
• non-monetary benefits
• education/training/qualification
• trade unions and barriers to entry
• wages and conditions of other jobs
• legislation

Question 6

3.5.2 - What is elasticity of supply?

Answer 6

• Responsiveness of supply to a change in wage rates
• depends on level of qualifications and training
• long run supply of labour will be more elastic

Question 7

3.5.2 - What causes market failure in the labour market?

Answer 7

• Immobility - can cause excess supply or demand of labour in an area/occupation
• Geographical mobility - difficult to move from one place to another due to cost of movement
• Occupational mobility - difficult to move from one job to another due to lack of skills

Question 8

3.5.3 - Why do wage rates differ within an occupation?

Answer 8

• age
• education
• training
• work experience
• skills/talent/ability to perform task
• sex
• ethnic background

Question 9

3.5.3 - How are wages determined in a perfectly competitive market?

Answer 9

• purely determined by demand and supply

- all workers paid the same

Question 10

3.5.3 - How is wage determined by a monopsony in the labour market?

Answer 10

• only one buyer of labour
• an increase in the wage for one increases the wage for all
• employ where MC=D

Question 11

3.5.3 - How is wage determined in a monoploy in the labour market?

Answer 11

• existence of trade unions means they can operate as the only seller of labour
• barriers o entry - reduce supply or set wages at specific wage and ensure workers are not prepared to work for less

Question 12

3.5.3 - What are the macroeconomic effects of minimum wages?

Answer 12

• reduce inequality
• rise in AD
• public finances worsened as the gov employed many people on minim wage
• rise in cost = reduction in competitiveness - increase SRAS - inflation in the short term

Question 13

3.5.3 - What are the current labour market issues?

Answer 13

• skills shortage - UK suffers from geo and occupational immobility
• young workers struggle to get a job
• retirements - pensioners now make over 50% of welfare spending
• wage inequality
• zero-hour contracts
• Gig economy - self employed/short term contracts - concerns over unreliability of pay
• migration

Question 14

3.5.3 - How can the government intervene to solve market issues?

Answer 14

• National minimum wage - reduce poverty - raise costs
• Maximum wages - public sector spending down - excess demand
• Public sector wage setting
• Tackling immobility - improve transport links - improve education