Labour markets

Question 1

What is derived demand

Answer 1

where the demand for one good is dependent on the demand for another related good e.g Construction industry – demand for new office construction- demand for office space

Question 2

What is demand for labour

Answer 2

Shows how many workers an employer is willing and able to hire at a given wage rate

Question 3

Factors that affect the demand for labour

Answer 3

Wage rate

Increase in labour productivity

A change in technology

Changes in the number of firms

Question 4

Factors that affect supply of labour

Answer 4

Wages, working condition, Income tax rate, school leaving age, retirement age.

Question 5

Why is the labour demand curve sloping downwards

Answer 5

The demand curve is downward sloping because employers demand less labour as its price increases. The higher the price of labour, the more likely firms will substitute labour with capital (machinery). Also the higher wage the higher cost of production leading to higher prices less demand for products, less demand for workers.

Question 6

Why is the labour supply curve upward sloping

Answer 6

The labour supply curve is upward sloping, the higher the wage the more workers want to be employed. They may be attracted from other industries. In the long term new entrants to the labour force may train to work in that occupation increasing supply.

Question 7

Define trade unions

Answer 7

Trade Unions are organisations of workers that seek through collective bargaining with employers to protect and improve the real incomes of their members, provide job security, protect workers.

Question 8

What does low pay rate result on DS diagram

Answer 8

Low pay rate results in shallow flat demand and supply lines

Question 9

What does high pay rate result on DS diagram

Answer 9

High pay rate results in steep demand and supply lines

Question 10

What are the axis on the labour diagram

Answer 10

Y Axis line Wage rate (W) and X axis Employment (E)

Question 11

What happens to the Labour diagram when minimum wage increases

Answer 11

Increase in labour supply, a fall in labour demand but a shift.

Question 12

What happens to the labour diagram when there is an Increase in labour productivity

Answer 12

An increase in labour supply, a shift outwards of labour demand

Question 13

When is the labour costs elastic

Answer 13

When labour expenses are a high % of total costs, then labour demand is more elastic

Question 14

What is the elasticity of labour demand

Answer 14

Elasticity of labour demand measures the responsiveness of labour demand when there is a change in the wage rate.

Question 15

What is the price elasticity of demand for the final output to consumers

Answer 15

This determines whether a firm can pass on higher labour costs to consumers in the form of increased prices

Question 16

What causes a shift in labour demand

Answer 16

The labour demand curve shifts when there is a change in the conditions of demand in the jobs market, A rise in consumer demand which means that a business needs to take on more workers, basically a shift in labour demand is caused by other factors than wage rate.

Question 17

What is the labour supply

Answer 17

The labour supply is the number of hours people are willing and able to supply at a given wage rate. Not employed

Question 18

What happens to labour supply when wages increase

Answer 18

As wages rise, other workers enter this industry attracted by the incentive of higher wages, this can also depend on the elasticity of labour supply

Question 19

Factors of labour supply

Answer 19

Real wage rate on offer in the industry itself

Extra pay, overtime payments etc.

Wages in substitute occupations – increase in earnings for a particular job may cause people to switch their jobs

Question 20

Elasticity of labour supply

Answer 20

Elasticity of labour supply measures the extent to which labour supply responds to a change in the wage rate in a given time period

Question 21

What elasticity of supply do high skilled jobs have and why

Answer 21

Mainly more high skilled jobs have low elasticity as hard training and specific skills involved

Question 22

What elasticity of supply do low skilled jobs have and why

Answer 22

low skilled jobs the labour supply is elastic because a pool of labour is available at a constant market wage rate.

Question 23

What elasticity of supply do low skilled jobs have and why

Answer 23

low skilled jobs the labour supply is elastic because a pool of labour is available at a constant market wage rate.

Question 24

What is the equilibrium wage in a labour market

Answer 24

The equilibrium market wage rate is at the intersection of the supply and demand for labour, Employees are hired up to the point where the extra cost of hiring an employee is equal to the extra sales revenue from selling their output.

Question 25

Causes of pay differentials

Answer 25

Compensating wage differentials – a reward for risk-taking, working in poor conditions and during unsocial hours

Different skill levels- market demand for skilled labour (with inelastic supply) grows more quickly than semi-skilled workers

Difference in labour productivity and revenue creation – workers whose efficiency is highest and ability to generate the most revenue will earn more

Question 26

What is labour market flexibility

Answer 26

Labour market flexibility refers to the speed and ability of a labour market to respond to a change in the economy references to occupations/skills, location, number of hours worked, pay arrangements etc

Question 27

What is net migration

Answer 27

Net migration – The difference between immigration and emigration: The number of people moving to live in a country minus the number of people moving out of that country to live elsewhere.

Question 28

Impact of migration on AD

Answer 28

AD: High net migration -> population grows -> High % of migrants are in paid work -> Overall rise in factor incomes -> Increase in consumer spending -> Impact on other components of AD.

Higher consumer spending, Increased investment, Higher tax revenue, Demand for house rises, possible lift to exports

Question 29

How does high net migration affect labour diagram

Answer 29

Creates a shift in labour supply outwards (increase)

Question 30

How does emigration affect labour diagram

Answer 30

Creates a shift in labour supply inwards (decrease)

Question 31

Impact of migration on AS

Answer 31

Expansion in active labour force, Increase in stock of human capital, Increased in market flexibility, Rise in business start up? and Higher labour productivity?

Question 32

What are the pull factors for migration

Answer 32

Job opportunities in richer nations where per capita incomes are higher

Good access to key public services (education, health)

Hysteresis effects – new migrants tend to go to places where others have been successfully moved to.

Higher minimum wage in some countries + access to higher state welfare benefits

Low cost of transport including airplane.

Question 33

What are the push factors for migration

Answer 33

Civil conflict

Poor working conditions

Low wages

Question 34

What are the push factors for migration

Answer 34

Civil conflict

Poor working conditions

Low wages

Question 35

What percentage of workers are part of a union

Answer 35

Around 24% of workers have a union membership (called unionization)

Question 36

Definition of collective bargaining

Answer 36

Collective bargaining is when unions together negotiate with employers over wages.

Question 37

Definition of age dependency ratio

Answer 37

Age dependency ratios are a measure of the age structure of the population, relates to the number of individuals that are likely to be dependent on others to support their daily living.