3.5- labour markets

Question 1

What type of demand is labour?

Answer 1

A derived demand

Question 2

What is demand for labour related to?

Answer 2

How productive labour is and how much the product is demanded.

Question 3

What causes a move along the supply and demand curves for labour?

Answer 3

The wage rate

Question 4

What is the demand for labour derived by?

Answer 4

The demand for products. The higher the demand for products the more labour will be needed.

Question 5

What is the demand for labour affected by?

Answer 5

-wage rate. (when wages are high firms might switch to capital, might be cheaper)
-demand for products
-productivity of labour (more productive workers are,higher demand for them, eg more skills)
-substitutes for labour (if can be replaces with capital demand for labour fall)
-how profitable the firm is (more profits more labour they can afford)
-The number of firms in the market.

Question 6

What is the supply of labour affected by?

Answer 6

-the wage rate (higher wage more workers willing.
-demographics of the population (the more people who are able and willing the higher the supply), changes with school leaving ages.
-migration- supply of labour at all wage rates increases.
-advantages of work- non monetary benefits, holiday entitlements.
-leisure time.
-taxes- if benefits are more generous people might not want to work.
training- if a lot of training is required for a job, then the supply of labour may fall.

Question 7

What is the mobility of labour?

Answer 7

the ability of workers to change between jobs.

Question 8

What is geographical mobility of labour?

Answer 8

Refers to the obstacles which prevent the factors of production moving between areas. The financial costs involved with moving, the regional variations in house prices and living costs across the uk.

Question 9

What is the occupational immobility of the factors or production?

Answer 9

When workers don’t have enough transferrable skills. Inefficient education, training and skills.

Question 10

How is the labour market equilibrium determined?

Answer 10

Where the supply of labour and demand for labour meet. This determines the wage rate.

Question 11

Diagram of labour market equilibrium:

Question 12

What are current labour market issues?

Answer 12

Wage differentials.

Question 13

What does wage differentials mean?

Answer 13

Sometimes, even in the same job, workers can be paid different amounts.

Question 14

What is wage differentials due to?

Answer 14

-Formal education- those with a degree earn more
-Skills, and training-Jobs which require more training and education offer higher wages.
-Pay gaps- Wage gap between skilled and unskilled workers has increased.
-Wages and skills-Skilled workers produce higher outputs that unskilled workers because they are more productive, so they can demand higher wages.
-Gender- women still earn less than men.
-Discrimination- workers might be discriminated against due to age, disabilities, gender and race.

Question 15

What is the impact of migration on labour markets?

Answer 15

-More competition to get a job due to the rise in working population.
-Migrants tend to bring high quality skills to the domestic workforce- increase productivity.
Migrant labour affects the wagest of the lowest paid by bringing them down.

Question 16

Whys is Unemployment in the UK a problem?

Answer 16

-If consumers are unemployed they have less disposable income and standard of living may fall.
-Government might have to spend more money on benefits which comes with an opportunity cost.

Question 17

What does a minimum wage diagram suggest?

Answer 17

That there is unemployment.

Question 18

What are the positives of the minimum wage?

Answer 18

Increase standard living of the poorest.
Provide an incentive for people to work.
Gov making more tax revenue due to people earning higher wages.

Question 19

What are the negatives of the minimum wage?

Answer 19

-might make it harder for younger people to find a job, because they have lack of experience and firms might not want to pay high wages.
Firms may not be able to afford high wages- leading to failure.

Question 20

What is a maximum wage?

Answer 20

Limits how much income someone can earn. It can be used to redistribute wealth better.

Question 21

What will a maximum wage limit?

Answer 21

Inflation.

Question 22

Disadvantage of maximum wage?

Answer 22

Disincentive to innovate, workers might opt for less demanding work.

Question 23

How could maximum wages lead to government failure?

Answer 23

If the government misjudge where the optimum wage should be.

Question 24

How much of government spending goes towards public sector pay?

Answer 24

50%

Question 25

Government policies to tackle labour market immobility

Answer 25

Welfare payments- the reward for working should be high.
Training- more available, better education to make labour market more flexible.
Infrastructure- Improving infrastructure helps geographical immobility- easier to move.
Housing- more affordable, subsidies so people more willing to move for work.

Question 26

Definition of the elasticity of demand for labour

Answer 26

how responsive demand for labour is when the market wage rate changes.

Question 27

What is elasticity of demand for labour affected by?

Answer 27

-How much labour costs in proportion of total costs- lower proportion of cost- more inelastic.
-The easier it is to substitute factors, the more elastic the demand.
-PED of a product, more elastic a product, more elastic the demand for labour.

Question 28

Definition of elasticity of supply of labour

Answer 28

responsiveness of the quanitity of labour supplied to a change in the wage rate.

Question 29

What is elasticity of supply of labour affected by?

Answer 29

Skills of the workforce- skilled jobs have lower elasticities than unskilled jobs, because harder to attract workers with necessary skills.
Length of training- the longer training period, the more inelastic
Sense of vocation- some jobs rewards are not financial, these will have inelastic supplies.
Time period- short run, labour supply is inelastic and in long run more elastic.