week 17

Question 1

what are the five trends

Answer 1

1. industrialised countries have had real wage growth
2. rate of real wage growth has stagnated since 1973
3. wage inequality has increased
4. number of people employed has increased
5. western europe has higher unemployment than US

Question 2

what is the labour market

Answer 2

supply and demand analysis can be used to find price of labour and quantity
labour market is an input market
look at aggregate levels of employment and real wages

Question 3

what affects demand for labour

Answer 3

productivity of workers - greater productivity increases employment
price of the workers output - high real price increases employment
diminshing returns to labour

Question 4

what affects demand for labour

Answer 4

productivity of workers - greater productivity increases employment
price of the workers output - high real price increases employment
diminishing returns to labour - assumes non-labour inputs are constant, adding one worker increases output by less than previous worker added

Question 5

what is value of marginal product (VMP)

Answer 5

extra revenue that an added worker generates

Question 6

what is the demand for labour curve

Answer 6

maximise profits, firms hire extra work - only if VMP exceeds wages
VMP decreases as more workers are hired
more workers employed at lower wage
downward sloping

Question 7

when does labour demand shift

Answer 7

VMP of worker changes
determined by price of company’s output and productivity of workers

Question 8

how is demand for labour affected by price of output

Answer 8

price of output increases, demand shifts right
an increase in price of workers ouput increases demand for workers

Question 9

how does productivity affect demand for labour

Answer 9

increase in productivity increases VMP
demand curve shifts right, hire more workers at any given wage

Question 10

what is reservation wage

Answer 10

lowest wage a worker would accept for a given job
opportunity cost of leisure time

Question 11

what is aggregate labour supply

Answer 11

determined by:
size of working population
share of working age pop willing to work
wage rate - increases, workers are more willing to supply labour
education and training

Question 12

what causes a shift in labour supply

Answer 12

caused by a change in number of workers willing to work at each wage
increase/decrease in working age pop
increase/decrease in share of working age pop
job availability
education and training

Question 13

what causes increasing wages

Answer 13

increased labour demand
real wages and employment increased
productivity increased from tech progress and increased capital

Question 14

what caused stagnated wage growth

Answer 14

slower demand growth
supply of labour has increased
labour supply will slow, depends on whether productivity growth continues to decline

Question 15

what caused increased wage inequality

Answer 15

globalisation caused expansion of markets
increased specialisation and efficiency
goods produced domestically are no longer competitive
wages in importing industries fall and wages in exporting industries increase, wage inequality increases
technological change - favours higher skilled workers

Question 16

what is the principle of comparative advantage

Answer 16

countries should specialised in producing goods and services that they can produce at lower cost than other countries

Question 17

what is globalisation

Answer 17

flows of goods, services, capital and labour across international borders
impacts low wages workers

Question 18

what is worker mobility

Answer 18

movement of workers between jobs, firms and industries

Question 19

what is skill-biased technological change

Answer 19

affects the marginal products of higher skilled workers differently from lower skilled workers

Question 20

what are the mechanisms for the effects of globalisation

Answer 20

merchandise trade - importing goods that are made with low skilled workers and exporting goods made with high skilled workers
outsourcing

Question 21

how does technology affect inequality

Answer 21

eliminates low skilled work

Question 22

what drives increasing inequality

Answer 22

technology
globalisation
labour market policies - reduces worker bargaining power
tax policies - cuts to social safety nets
differences in education/skill level
discrimination

Question 23

why does inequality matter

Answer 23

too little inequality:
reduces motivation, slows economic growth, reduces incentives to take risk, limits charity
too much inequality: reduces motivation, limits economic mobility, limits healthcare, slows economic growth, divides society, distorts politics, reduces political participation, reduces investment in public goods

Question 24

what policies immediately address inequality

Answer 24

progressive taxation and transfer programmes funding infrastructure and education
strengthen labour laws
targeted social programs - food assistance, social housing
policies that support sustainable and inclusive economic growth

Question 25

how do you address inequality long term

Answer 25

access to resources like education, housing, opportunities to build wealth

Question 26

what is unemployment insurance

Answer 26

government transfer to unemployed workers
reduces cost and gives incentive to search for a job longer
to be efficient - should be for a limited time and less income than working

Question 27

how do health and safety regs reduce labour demand

Answer 27

increase employer costs and reduce productivity
reduction in demand will increase unemployment and lower wages

Question 28

what are impediments to full employment

Answer 28

european labour markets are more regulated - high minimum wage, little flexibility in benefits and more powerful unions
reduces employment in europe