3.1.18 - Wage Determination in Comp. and Non-Comp. Markets Flashcards

Question

True or False: In a monopsony, the marginal cost of labor is equal to the average cost of labor.

Answer 1

False ## Footnote The marginal cost is higher than the average cost.

Answer 2

If the W/R goes up to £6 to attract a 4th worker, then the AC of all 4 workers will now be £6, However, the Marginal Factor Cost of the 4th worker is £6 + £1 extra wages for the other 3 workers, therefore making the MFC £9 This demonstrates that in a Monopsony Labour Market, the MFC of employing additional labour is always above the AC of employing additional labour.

Answer 3

1. X-Axis: QoL employed; Y-Axis: W/R 2. Two Supply curves: MCL and ACL = Labour Supply 3. One Demand Curve: Demand = Marginal Revenue Product Labour 4. Monopsonist employs Eq units of labour, where MCL = MRPL (All units of labour up to this point have increased the profit of the firm) 5. The firm must offer a wage of Wq, which is where that desired quantity of workers will be willing to work.

Answer 4

All units of labour up to this point have increased the profit of the firm, as their MRP is greater than their MC. All units of labour past Eq have a higher MC than MRP, thus they are not employed.

Answer 5

The loss of earnings to employees that are not captured back by the employer; therefore society is worse off.

Answer 6

The beneficial cost saving for the firm because they can pay a lower wage rate.

Answer 7

An organisation formed by a group of workers to further their interests.

Answer 8

Through collective bargaining.

Answer 9

* Wages * Employment rights (wrongful dismissal) * Working conditions * Pensions

Answer 10

Trade unions aim to drive up wages, which can lead to rising costs for firms.

Answer 11

Improved worker morale can lead to increased productivity.

Answer 12

[national]

Answer 13

They can boost productivity, potentially increasing profits.

Answer 14

We assume that there is a "closed shop" agreement

Answer 15

* All members of a particular labour market must be members of the same Trade Union * Therefore, the Trade Union is a Monopoly supplier of Labour in the market.

Answer 16

The TU Labour Supply is Perfectly Elastic until it hits the Supply Curve for Labour. * This is because the TU's members refuse to give their labour unless they are paid at the demanded W/R or above. Meaning that Labour is only supplied at W/Rs at or above what is demanded.

Answer 17

* Where Labour Supply (Trade Union) = Demand for Labour (W1 and E2) * The Competitive Labour Market Equilibrium is at E1 and W0

Answer 18

* Equilibrium employment falls and the wage rises compared to the competitive market * This is due to the lack of competition on the supply side of the Labour Market, since the TU is a monopoly supplier.

Answer 19

1. Labour no longer supplied at the W/R set at MCL=MRP 2. Labour now supplied where the Imposed TU Wage = MRP (new equilibrium)

Answer 20

* The Labour Market is able to achieve a higher level of employment and higher wage than would have been achieved had it not existed. * Although, in reality, it is unlikely that the Union will have the power to increase the W/R as much as the diagram suggests.

Answer 21

Differences in pay among workers in the same job due to various factors ## Footnote Factors include skills, qualifications, training, formal education, gender, and discrimination.

Answer 22

Skills, qualifications, and training ## Footnote Jobs requiring more training and education usually offer higher wages as firms compensate for the cost of training.

Answer 23

On average, those with a degree earn more over their lifetime than those with just A Levels ## Footnote This reflects the value placed on higher education in the labor market.

Answer 24

Technological change and globalization ## Footnote These factors have shifted production abroad, affecting wage distributions.

Answer 25

They produce higher outputs and are more productive ## Footnote Higher demand for skilled labor leads to increased wage potential.

Answer 26

Career breaks, fewer hours worked, crowding into low-paid jobs, and discrimination ## Footnote Despite equal pay laws, women still earn less than men on average.

Answer 27

Age, disabilities, gender, and race ## Footnote Discrimination can lead to unequal pay and job opportunities.

Answer 28

Increases competition for jobs and brings high-quality skills ## Footnote Migrants often fill gaps in the domestic workforce, enhancing productivity.

Answer 29

It can bring down wages for the lowest paid, with limited impact on medium and higher income households ## Footnote Evidence of worker displacement or depressed wages for higher income groups is hard to find.

Answer 30

73.2% ## Footnote This rate fell to 70.1% during the financial crisis.

Answer 31

4.9% ## Footnote This rate reflects the economic conditions and job market dynamics.

Answer 32

1. Decreased disposable income 2. Lower standard of living, 3. Psychological effects 4. Increased government spending on JSA ## Footnote Unemployment also results in lower tax revenue and opportunity costs for society.

Answer 33

* Hysterisis - a type of structural unemployment where someone is out of work for a long period of time, leading to their skills deteriorating (which keeps them out of work for longer) * If young people find it difficult to get into work at the beginning of their careers, they may enter Hysterisis and be put off from participating in the Labour Market as an Adult.

Answer 34

* Resources that the Government has to spend on JSA to counteract Unemployment, could have been invested elsewhere * Workers could have produced goods/services if they were employed

Answer 35

* Aim for an Unemployment rate of 3% (More generally, it aims for Full Employment) * This figure accounts for those in frictional unemployment

Answer 36

* Crime and Vandalism * People have less respect for the rule of law when they do not have a stake/role in the society that it governs.

Answer 37

A national minimum wage sets the minimum hourly wage rate that is acceptable in law.

Answer 38

To remove the problem of poverty pay.

Answer 39

When earnings from paid work do not result in a living wage and fail to push people out of poverty.

Answer 40

The minimum income needed for a worker to meet their basic needs, such as food, housing, and other essentials, while maintaining a decent standard of living.

Answer 41

* Lack of access to Labour Market due to barriers to entry (e.g. discrimination) * Lack of bargaining power in uncompetitive markets, e.g. Monopsonist Labour Markets. In this case the employer can adopt a 'take it or leave it' attitude. * Lack of skills meaning that workers must accept low wages * Inward-Migration from low-pay countries, where foreign workers are prepared to work for cheap wages, for short periods of time, which drives down wages for indiginous employees.

Answer 42

* $6.56p per hour for Adults * $4.62 per hour for Under-18s

Answer 43

The Living Wage, established in 2016, set the minimum wage rate at £8.91/hour for those 23yrs+

Answer 44

* Demand Contracts, due to a combined income and substitution effect in response to the higher W/R. * Supply extends as existing employees are ecnouraged to supply more labour, and/or it will encourage workers to come out of voluntary unemployment

Answer 45

Income Effect: Firm's Profits (income) decline as their Labour Costs rise, thus leading to the firm reducing it's demand for Labour Substitution Effect: At a high W/R, firms will look to substitute workers where they can, for other workers or with capital (e.g. robots).

Answer 46

Reduce the substitution effect and make demand for labour more inelastic.

Answer 47

Rises, as whilst more workers are prepared to supply their Labour at the new W/R, firms have contracted their demand for labour due to the rise in labour costs.