The Labour Market Flashcards
The marginal productivity theory
states that the demand for labour is dependent on the marginal revenue
product (MRP)
The causes of shifts in the demand curve for labour
a change in the quantity demanded of the product that the labor produces; a change in the production process that uses more or less labor; and a change in government policy that affects the quantity of labor that firms wish to hire at a given wage.
The determinants of the elasticity of demand curve for labour
How much labour costs as a proportion of total costs. The higher the cost of
labour as a proportion of total costs, the more elastic the demand. Labour
costs are high as a proportion of total costs in the services
The easier it is to substitute factors, the more elastic the demand for labour,
because firms can easily to switch to cheaper forms of production, such as
capital.
The PED of the product also affects labour. The more price elastic the
product, the more price elastic the demand for labour
Supply of labour
The number of workers willing and able to work at the current wage rate.
Causes of shifts in the market supply for labour
- Migration
- Advantages of work
- Leisure time
- Trade unions
- Taxes and benefits
-Training
Role of market forces in determining relative wage rates
The forces of supply and demand interact to determine relative wage rates in a competitive labour market. If there is more demand than supply for workers in a specific occupation, salaries will rise, luring more workers and increasing the labour supply. In contrast, wages will drop if labour supply exceeds labour demand, which may lead some workers to look for other jobs or leave the labour market
How monopsony power contributes to imperfections in a labour market
When there is only one buyer of labour in the market
the employer has considerable market power and is able to set the wage rates and employment levels. Monopsonistic employers can lower both the relative pay rate and the amount of employment below levels that would be present in a labour market with perfect competition by using their market dominance
How trade unions contributes to imperfections in a labour market
If trade unions are pushing for higher wages above the market
equilibrium, the labour market is likely to be more flexible. Trade unions can also
increase job security. Higher wages can be demanded by limiting the supply of
labour, by closing firms, or by threatening strike action. Higher wages could cause
unemployment, however. Trade unions can counter-balance exploitative monopsony
power.
How imperfect information contributes to imperfections in a labour market
Some qualified workers might not be aware of higher paying jobs in other industries or with other firms. Some workers might not understand the long term benefits of investing in improving their skills and education. This can limit the productivity and potential progression of workers. It makes the market inefficient.
Impact of Monopsony Power on Wage Rates and Employment
The employer has a significant amount of power over the wage-setting process in a monopsonistic labour market. By hiring fewer people at a lower wage, they can put downward pressure on wages. In contrast to a market with perfect competition, this results in a lower relative pay rate. Additionally, because there are fewer employment possibilities, monopsonistic businesses may force workers to accept lesser pay because there aren’t many other options available.
Factors that affect the ability of trade unions to influence wages and levels of employment in different labour markets
- If trade unions try and increase wage rates too much, firms might no longer be able to afford to employ workers. This could cause them to close down or reduce the number of workers they employ.
- Some workers might prefer a low paid job rather than be without employment.
Trade union impact on previously Perfectly Competitive Labour Markets
Trade unions are likely to have a greater impact on salaries and employment when they are brought into a labour market that was previously a competitive one. Trade unions can bargain on behalf of their members to achieve better benefits and higher salaries. This could, however, result in significant trade-offs including decreased employment levels or higher costs for employers.
Trade union impact on monopsony labour market
Trade unions are essential in preventing employers from controlling wages and employment levels in monopsony labour markets, where there is one employer with a high degree of employment power. Trade unions have the power to collectively bargain for more equitable pay and better working conditions. In a monopsony market, the establishment of a trade union might lessen the monopsony employer’s capacity to decrease wages and exploit employees.
National Minimum Wage
sets the minimum hourly wage rate that is acceptable in law
Uk’s National Minimum Wage
£11.44 (21 and older)
