3.5 - Labour market Content Flashcards
(86 cards)
1
Q
What is the demand for labour definition
A
- how many workers an employer/business is willing and able to hire at a given wage rate in each period
- Inverse relationship between demand for labour & the wage rate
- If the wage rate is high, then it becomes costly for a businesses to hire extra employees – Feb 2025 Relative real wage rates are rising
- When wages are lower, labour becomes relatively cheaper than capital inputs. A fall in the wage rate might create a substitution effect and lead to an expansion in labour demand with more people employed
2
Q
What are causes of a shift in labour demand
A
- Consumer Demand & Product Price: Increased consumer demand and higher product prices boost firm revenues, leading to a higher demand for labour.
- Labour Productivity: Improvements in efficiency make labour more cost-effective compared to capital, influencing hiring decisions.
- Employment Subsidies/Tax Incentives: Financial incentives lower non-wage costs, encouraging firms to employ more workers.
- Capital Equipment Costs & Technological Advancements: Cheaper, advanced capital (e.g., robotics) can substitute for labour, reducing the need for human workers.
- Legislation: Regulatory requirements (like mandated benefits or pensions) raise employment costs, thereby dampening labour demand.
3
Q
Why does demand for labour increase when workers become more productive?
A
- Because workers are better skilled, firms can choose to between labour and capital
- So if capital becomes more expensive then firms will demand more labour
- Workers will generate higher marginal revenue product so firms will want to hire more workers
4
Q
How is labour derived demand?
A
Firms hire workers in order to produce goods / services. (Outward shift in steel demand = outward shift in steel workers demand).
During boom many businesess will look to hire extra workers to supply increased ouptut
During recession, the demand for labour tends to fall causing a rise in cyclical unemployment
5
Q
What is the definition for Elasticity of labour demand
A
The responsiveness of demand after a change in the wage rate
6
Q
What are the determinants of Elasticity of demand for labour
A
- Labour costs as % of total costs: Higher % makes demand more wage elastic due to significant impact on costs.
- Ease & cost of substitution: More elastic if labour can be replaced cheaply (e.g., cameras replacing guards).
- Price elasticity of final product: Inelastic product demand lets firms pass on higher labour costs to consumers.
- Time period: Long run allows firms to switch inputs more easily, increasing elasticity.
7
Q
What does elastic and inelastic demand for labour look like
A
8
Q
What is labour supply
A
the number of hours that people are willing and able to work at a given wage rate
9
Q
What does labour supply look like
A
- Labour supply is from workers and is upwards sloping
- As wages rise other workers enter this industry attracted by the incentive of higher pay
- The extent to which a rise in the prevailing wage or salary in an occupation leads to an expansion in the supply of labour depends on the elasticity of labour supply
10
Q
Factors causing shifts in the supply of labour to an occupation/industry
[5]
A
- Real Wage Rates: Higher pay (base, bonuses, overtime) attracts more workers. For example, overtime incentives in manufacturing can boost labour supply.
- Wages in Substitute Occupations: If a similar job offers better wages, workers may switch fields (e.g., electricians moving to plumbing when pay improves).
- Barriers to Entry: Strict qualifications or licensing requirements (like medical degrees) limit entry, decreasing the available labour pool.
- Non-Monetary Job Characteristics: Job risk, flexibility, benefits, and career prospects influence a worker’s choice; more demanding or hazardous jobs often require higher compensation.
- Occupational Mobility & Skills Training: Access to training and apprenticeships (such as coding bootcamps in tech) increases the supply of skilled workers.
11
Q
What are the stats for the university labour market as of March 2025
A
- 206,000 academic staff
- 246,000 non-academic staff
- 10,000 jobs are at risk due to funding crisis
- Linguistics, Arts departments at risk
12
Q
What are some non-wage factors affecting labour supply
[8]
A
- Job risk and job security
- Career opportunities
- Anti-social hours
- Generosity of occupational pensions
- Strength of vocation - degree of passion, commitment, and purpose an individual feels towards their chosen profession or life path. - don’t care about the money
- Working conditions – terms of contract
- Quality in-work training/professional development
- Living and working overseas
13
Q
What is the definition for the elasticity of labour supply
A
Responsiveness of the quantity of labour supplied in response to a wage change
14
Q
What does inelastic and elastic labour supply look like
A
15
Q
Factors affecting elasticity of supply of labour
A
- Skill Requirements: Specialized skills and costly, lengthy training make labour supply more inelastic. Conversely, when minimal skills are needed, the available labour pool is larger and more elastic.
- Nature of Work: In vocations like nursing or caring roles, workers tend to be less responsive to wage changes, leading to inelastic supply.
- Time & Occupational Mobility: In the short run, labour supply is inelastic due to the time required for retraining. Greater ease of retraining increases elasticity over time.
- Geographical Mobility: Barriers such as high housing costs or poor transport limit workers’ ability to relocate for better wages, reducing supply elasticity.
16
Q
What are different market failures in labour markets
A
- Geographical immobility
- Occupational immobility
- Employer discrimination
- Monopsony employers
- Disincentives to work
- Training Gaps
17
Q
What policies could be used to resolve geographical immobility? With evaluation
[3]
A
- Subsidies/ investment in housing in expensive areas
- Opportunity cost and time lag
- Investment in transport links
- Excessive administration costs, bureacracy - HS2.
- Opportunity cost and time lag.
- Recruit from abroad - free restrictions on immigration.
- Language/qualification barriers.
- May return home eventually
18
Q
What policies could the government use to solve occupational immobility?
A
- Raise retirement age
- Older workers may be less productive
- Firms may not be willing to hire older workers
- Government run/subsidise vocational training/schemes to boost human capital. Equip with skills to boost productivity.
- Asymmetric information, excessive administration costs,
19
Q
Reasons why geographical immobility exists and persists
[5]
A
- Family Ties and Social Networks: Individuals may be reluctant to move due to strong connections with family, friends, and their community, which provide emotional support and stability.
- Housing Market Constraints: High housing costs, lack of affordable options, or challenges in selling property can make relocating financially unfeasible.
- Cultural or Regional Preferences: People often have a sense of belonging or attachment to their local culture, environment, or lifestyle that discourages relocation.
- Limited Knowledge of Opportunities: A lack of awareness about better job prospects or living conditions in other areas may prevent people from considering a move.
- Resistance to Change A natural reluctance to disrupt familiar routines often deters individuals from moving, even when better opportunities are available.
20
Q
What is occupational immobility of labour
A
Barriers to the mobility of factors of production between different industries in the economy
21
Q
What are some key causes of occupational immobility of labour
A
- Skills gaps: New jobs may require different skills from those that unemployed worker can offer.
- Training gaps: Unemployed workers may not have access to affordable training schemes that would allow them to improve their human capital and improve employability.
- Experience gaps: The long term structurally unemployed often have gaps in their CVs that makes people less attractive to potential employers.
- Confidence and motivation: The longer someone is unemployed, the harder it is to find fresh work. Skills decline and so too does confidence and motivation to look for a job.
22
Q
What market failures are caused by immoblity
[3]
A
- Structural Unemployment and Economic Vulnerability: Occupational immobility prevents people from finding work, leaving towns with low mobility more exposed to external economic shocks.
- Persistent Relative Poverty: Long-term unemployment reduces lifetime earnings, and areas with low mobility face higher risks of economic deprivation, lower incomes, and increased debt levels.
- Loss of Economic Efficiency and Social Welfare: Immobility leads to inefficient use of scarce resources, reducing potential output and increasing social costs from unemployment and rising relative poverty.
23
Q
Diagram of monopsony in labour market
A
- In a competitive labour market, the equilibrium will be where D=S at Q1, W1.
- However, a monopsony can pay lower wages (W2) and employ fewer workers (Q2)
24
Q
Why do monopsonists pay less than firms in a competitive market?
A
- The marginal cost of employing one more worker will be higher than the average cost – because to employ one extra worker the firm has to increase the wages of all workers.
- To maximise the level of profit, the firm employs Q2 of workers where the marginal cost of labour equals the marginal revenue product MRP = D
- In a competitive labour market, the firm would be a wage taker. If they tried to pay only W2, workers would go to other firms willing to pay a higher wage.
25
How is a monopsony in a labour market a potential cause of market failure
Because a monopsonist may pay lower wages than if the labour market was more competitive. Lower wages increase the risk of people being in working poverty
26
How would a minimum wage help workers in a monopsony recieve higher wages?
| Diagramatic analysis
* A monopsony pays a wage of W2 and employs Q2.
* If a minimum wage was placed equal to W1, it would increase employment to Q1.
* A minimum wage of W3 would keep employment at Q2.
27
What are the problems of monopsony in labour markets?
* Lower wages for workers. This increases inequality in society. Lower tax revenue
* Workers are paid less than their marginal revenue product.
* Firms with monopsony power often have a degree of monopoly selling power. This enables them to make high profits at the expense of consumers and workers.
* Firms with monopsony power may also care less about working conditions because workers don’t have many alternatives to the main firm.
28
What are the problems with monopsony in product markets?
* Lower profits, producer surplus - might have to cut back on investment and employment to save money.
* Suppliers might reach their shut down point
* Delayed payment
* Driven out of market due to losses
* Workers face job losses.
29
What is labour market monopsony
* A type of labour market failure - imperfectly competitive labour market
* Firms that are dominant buyers of labour have the state power to reduce wages and employ fewer workers e.g. NHS, State Education, Rail Companies, Uber
* This may also mean unsafe working conditions, poor job security or significant disparities of pay between managers
30
How could the government prevenet monopsonist employers from exploiting their workers?
* Minimum wage £10.42
* Maximum working hours (48 hour work week)
* Health and safety legislation, paid holiday/breaks. sick pay, pension.
* Right to be in a trade union - industrial action to argue for better wages/working conditions to balance out monopsony power.
* Government owned (nationalised) organisations should be able to protect workers with fair pay, safety standards and job security.
* Groceries code adjudicator can fine 1% of revenue
31
Why might government intervention to resolve monopsony power be ineffective?
* 'Self employed' do not recieve any of the legal protections mentioned
* Tactic used by 'gig economy' firms like Uber and Deliveroo to avoid paying workers fairly.
* Minimum wages are different for different ages - £10.42 only applies to those aged 23 and above.(£10.42) 16-18 year olds earn £5.28.
* Governments may lack the information that rules are being broken (employees may not report due to fear of retaliation.
* Regulatory capture - government is excessively sympathetic to business and free market.
* Threat of firms shutting down - Uber suspends service in Tanzania over price regulations
* Synoptic links - Creates unemployment, wage price spiral
32
What is the poverty trap
| disincentive in the labour market
* The poverty trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the effects of the tax and benefits system.
* Working more hours means some welfare benefits are cut.
* Earning extra income means that people now pay national insurance and income taxes.
* The overall marginal rate of tax (including benefit withdrawal) may be high – perhaps close to 100%
33
What is the unemployment trap
| disincentives in the labour market
This happens when the prospect of the loss of unemployment benefits dissuades those without work from taking a new job – this creates a disincentives problem in the labour market.
34
What is labour market discrimination
Labour market discrimination occurs when an employer uses metrics/characteristics other than the measured productivity of a worker to judge their attractiveness for a job/role. Discrimination can be based on:
* Gender
* Ethnicity / racial profile /faith
* Sexuality
* Age
* Height / Size
* Social (class) background
* Language
* Disability
* Any other characteristic
35
What are some potential solutions to resolve labour market failure?
* Remove migration restrctions, create visa schemes.
* Retraining subsidies,
* Improve public health -
* Increase minimum wage
* Lower benefits/income tax
* Government is forcing benefits claimaints fo apply for jobs in different industries after 4 weeks instead of 3 months
36
What is the equilibrium wage rate
* The equilibrium wage rate in the industry is set by the meeting point of the industry supply and industry demand curves.
* In a competitive market, firms are wage takers because if they set lower wages, workers would not accept the wage.
* Therefore they have to set the equilibrium wage We.
* Because firms are wage takers, the supply curve of labour is perfectly elastic therefore AC = MC.
* The firm will maximise profits by employing at Q1 where MRP of Labour = MC of Labour
* Wages will rise more quickly if the supply of labour is wage inelastic. This is because there might be shortages of skilled and trained staff available to work when they are needed by businesses
37
What are the main causes of differentials between occupations
| [7]
1. **Compensating wage differentials** – these might be a reward for risk-taking, working in poor conditions and during unsocial hours.
1. **Reward for human capital** – differentials compensate workers for (opportunity and direct) costs of human capital acquisition.
1. **Different skill levels** – market demand for skilled labour (with inelastic supply) grows more quickly than for semi-skilled workers.
1. **Differences in labour productivity and revenue creation** - workers whose efficiency is high and generate revenue for a firm often have higher pay.
1. **Trade unions who might use their collective bargaining power** – to achieve a mark-up on wages compared to non-union members.
1. **Artificial barriers to labour supply** such as professional exams, cross-border migration controls.
1. **Employer discrimination** - a factor that cannot be ignored despite many years of equal pay legislation in place.
38
What is the gig economy
The Gig Economy refers to a labor market dominated by short-term contracts and freelance work, where tasks are assigned via digital platforms. Companies like Uber, Deliveroo, and Amazon hire contingent (non-permanent) workers for specific services. I**n the UK, 4% of working adults (around 1.1 million) participate in this sector**. Its growth surged after the last recession, as employers turned to short-term contracts to minimize risks during economic uncertainty. This model allows flexibility but relies heavily on temporary, platform-mediated labor.
39
What are the benefits of the Gig economy for businesses
* Reduces the fixed costs for business – lower payroll expenses
* Reduced need for capital investment – as an example, an Uber driver usually owns their own vehicles
* Flexibility in managing hours to expected and changing demand for their products
40
What are the benefits of the gig economy for workers
* Flexible hours / control over when to work
* Ability to work from home (offering more autonomy)
* A common way for people to earn extra income perhaps because their main job is relatively low paid
* Less risk of getting stuck in routine jobs
41
What are some downsides of the gig economy for workers
1. Doubts over the true flexibility of hours offered by employers
1. Lack of paid vacation/sick leave/employment rights (this is now being challenged in the courts)
1. Job and income uncertainty make it harder to get a mortgage – many people are in precarious jobs
1. Inadequate investment in worker training which ultimately limits the growth of people’s human capital
1. Workers bear most of the risk in their job – often incomes are lower for the self-employed and many of those with gig economy jobs remain reliant on some welfare benefits and are classed as being in “working poverty”.
42
What are some of the wider downsides of the gig economy
* Shrinking of the tax base from self-employment will hit revenues for the government
* Reductions in road safety / more accidents, for example, from delivery drivers using un-licenced vehicles
* Are platform businesses creating sufficiently high-quality jobs? There are worries about inadequate training
43
What are some current labour market issues
* The Gig Economy
* Ageing Population in the UK
* Robotics and Artificial Intelligence
* Labour Migration
* Zero Hours Contracts
* Gender Pay Gap
44
What are the stats of the ageing population in the UK
* 2024 median UK age = 40
* 15 millions of pensionable age 2024
* Government can increase pension age – as they did raised it to 67
45
What are some possible microeconomic effects of an ageing population
| [3]
* **Consumer Demand & Business Profits**: Demand shifts toward healthcare, retirement services, and pharmaceuticals, while declining for education/child-focused goods; firms in growth sectors gain profits, others adapt or face losses.
* **Housing Market**: Longer home occupancy by seniors restricts supply, raising prices; demand grows for accessibility renovations and senior-specific housing, tightening rental markets.
* **Labor Market**: Healthcare/eldercare labor demand surges (boosting wages), while fewer young workers incentivize automation; older workers extend careers part-time, altering workforce dynamics.
46
What are the possible macroeconomic effects of an ageing population
* Impact on government welfare spending and future tax revenues, increased spending on NHS care
* Impact on the rate of growth of productivity and long-term GDP growth
* Impact on UK competitiveness if the median age continues to rise rapidly
47
What are the possible microeconomic effects of robotics
| [3]
Fims/Industries
Labour Markets
Consumer Welfare
* **Firms/Industries**
* ↑ Productivity: Higher output via automation, precision, 24/7 operation.
* ↓ Marginal costs: Cheaper production → short-term ↑ profits.
* Innovation race: Leaders invest in R&D; laggards risk obsolescence.
* **Labor Markets**
* Displacement: ↓ Demand for routine/low-skill jobs (e.g., manufacturing).
* Creation: ↑ Demand for high-skill roles (tech, maintenance, creativity).
* Wage polarization: ↑ High-skill wages, ↓ Low-skill wages (skill premium).
* **Consumer Welfare**
* ↓ Prices: Cost savings passed to consumers (competitive markets).
* ↑ Real incomes: Higher purchasing power from cheaper goods.
* Inequality risks: Gains unevenly distributed (low-skill workers lose out)
48
What are the possible macroceconomic effects of robotics
* **Employment & Unemployment**: Robotics may displace routine jobs (e.g., manufacturing), increasing demand for tech skills and worsening inequality. While new roles in robotics/AI could emerge, reskilling programs are vital to counter short-term unemployment and ensure long-term workforce adaptability.
* **Competitiveness & Trade**: Automation boosts exports for tech-advanced nations by cutting costs and improving quality, while labor-reliant economies risk decline. Trade may shift toward robotics exports and digital services, though lagging countries might resort to protectionism.
* **Government Finances**: Falling payroll taxes from automation could strain budgets, requiring new taxes (e.g., on robots) or shifts to consumption taxes. Simultaneously, spending on welfare and retraining may rise, demanding fiscal innovation.
49
Current UK labour migration situation
After several years of high levels of net inward migration of labour, the net flow of workers entering the UK labour market has slowed which was in part the result of the 2016 Brexit referendum
50
What are the possible microeconomic effects of a fall in net labour migration
* **Skilled Labour Shortages**: Reduced migration may worsen shortages in sectors like healthcare and agriculture, raising wages or costs. Farms might automate, but delays and higher prices (e.g., food, housing) could persist.
* **Property Demand/Prices**: Lower migration could ease urban rent inflation but constrain housing supply (due to labour shortages), balancing price pressures. Migration-dependent areas may see value declines.
* **Dynamic Efficiency**: Fewer high-skilled migrants risks innovation decline and "brain drain." Firms may invest in automation/training, but competitiveness could lag.
51
What are the possible macroeconomic effects of a fall in labour migration
* Fall in net outflow of remittances –will have an impact on UK current account of BoP
* Impact on employment and unemployment if aggregate labour supply contracts
* Consequences for economic growth and inflation from slower growth of AD + possible fall in LRAS
52
How many people in trade unions 2024
2024 5.5 million workers are in the TUC's 48 affiliated unions
53
Why has there been a long term decline in union membership
| [4]
1. Impact of legislation that has reduced/removed many of their powers to engage in industrial action.
1. Rise in flexible labour markets with short term contracts, zero hours, part time working, self-employment.
1. De-industrialisation – there are fewer jobs in industries where unions tended to be stronger – there are less jobs in heavy manufacturing and many more in services.
1. Impact of globalisation which has reduced the bargaining power of employees.
54
What are the key roles of trade unions
* **Collective bargaining** – protecting and improving the real living standards/real wages of their members
* **Employee rights** – protecting against unfair dismissal
* **Pension entitlements** – protecting pension for union members
* **Protecting jobs**
* **Health & safety**
* **Workplace training** – promoting better workplace training and education, helping the accumulation of human capital
55
How to trade unions affect wages and employment
Unions may bid for employers to pay a premium wage above the normal competitive market wage.
This might lead to an excess supply of labour and a contraction of total employment.
56
What will cause a trade union to be more successful
* Unions will have more success in raising wages for members if demand for labour is relatively wage inelastic – skilled workers
* Unions are more influential when they represent a high % of all workers in each industry/occupation.
57
What does a productiviy improvement agreement look like
It is a positve sum game, as workers benefit from increased pay, and firms benefit from increased productivity
58
What is the trade union wage premium
The percentage difference between the average hourly earnings of employees who are union members and those who are not – 4.2% in 2023
59
What are some evaluations for trade unions in labour markets
| [5]
**Union membership decline** → Flexible labour markets (zero-hour contracts), fewer heavy industries, shrinking public sector.
**Union pay influence** depends on density + strike threat (e.g., Tube drivers).
**Modern unions focus** on job security, pensions, safety, training, anti-discrimination vs. wage bargaining.
**Higher union wages ≠ job losses** (question theory; context matters).
**Win-win pay-productivity deals** (game theory shows mutual gains).
60
What are zero hours contracts
Zero hours contracts do not guarantee a minimum number of working hours each week. In the UK labour market, people on zero-hours contracts are more likely to be young, part time, women, or in full-time education when compared with others in employment.
61
What are some zero hours contract stats
* Oct-Dec 2024 – 1.134 million
* Employment Rights Bill 2024 – employers will be required to offer a guaranteed number of hours to workers after that worker has worked there for a period of time, suggested to 12 weeks
62
What are some arguments in favour of zero-hour contracts
* Supporters of flexible employment contracts argue that they are good for businesses where demand and production is highly seasonal - for example in retailing, brewing, tourism, and catering. Employing people on a zero-hour contract may allow businesses to better control their costs.
* Zero-hours contracts might benefit some people who want a high level of flexibility in choosing when they want to work. It might suit younger people for example.
63
What are some arguments against zero hours
1. A counter argument is that zero-hour contracts have contributed to an increase in "in-work poverty" where people are not able to work enough hours each week (often at relatively low wage rates) to earn sufficient to avoid remaining in poverty and reliant on top-up welfare benefits.
1. Uncertain incomes make it harder for people to be given loans, mortgages, and mobile phone contracts.
64
What is the gender pay gap
The gender pay gap is the measured difference between male and female earnings, usually expressed as a percentage of male earnings.
65
What are some Underlying causes of the (persistent) gender pay gap
* **Career breaks**: Women often pause careers (e.g., maternity leave), missing promotions/wage growth during peak earning years.
* **Education barriers**: In lower/middle-income countries, social norms/high fertility rates limit women’s access to qualifications.
* **Employment patterns**:
* Overrepresentation in part-time, low-paid sectors (e.g., care, clerical work).
* Clustering in lower-wage vocations.
* **Discrimination**: Bias in hiring/pay decisions persists.
* **Labor supply**: Increased female workforce participation may lower relative wages.
66
What are some policies to improve mobility and incentives might focus on
**Affordable housing**: Rent controls/renter rights to reduce geographic immobility.
**Transport subsidies**: Cheaper/free public transit to ease commuting barriers.
**Work vs. welfare gap**: Increase post-tax earnings (e.g., tax cuts for low incomes) to incentivize jobs over benefits.
**Tax-free childcare**: Support parents (e.g., free care for 3+ year-olds) to boost workforce participation.
**Vocational training**: Fund T-levels/apprenticeships to upskill workers for better-paid roles.
67
What is a minimum wage
A minimum wage is a legally enforced pay floor in the labour market. The National Minimum Wage (NMW) applies to most workers and sets minimum hourly rates of pay, which are updated annually. The National Living Wage (NLW) was introduced in 2016 and is the new name for the NMW rate that applies to workers aged 25 and over. - April 2025 - £12.21
68
What does a minimum wage do when imposed
The free-market equilibrium wage is W1 with employment level of E1. If a minimum wage of W2 is introduced – other factors remaining the same – employment contracts to E2 and the supply of labour expands to E3
69
What does a minimum wage to a market with inelastic labour demand
Smaller decrease in unemployment
70
What are some arugments for a minimum wage
* **Poverty Reduction** → Directly raises incomes for low-paid workers, reducing income inequality.
* **Fair Pay (Equity)** → Ensures wages reflect basic living costs and worker dignity.
* **Anti-Discrimination** → Reduces pay gaps for marginalized groups (e.g., women, youth).
* **Monopsony Power Check** → Stops employers exploiting wage-setting power in uncompetitive labor markets.
* **Work Incentives** → Makes paid work more attractive than welfare dependency, boosting labor supply
71
What are some arguments against a rise in the minimum wage
* **Job Losses** → Employers may cut jobs (especially low-skilled roles) or automate to offset higher labor costs.
* **Small Business Closures** → Smaller firms with tight margins struggle to absorb wage hikes, risking bankruptcy.
* **Inflation Spiral** → Higher wages → firms raise prices → erodes purchasing power, negating wage gains.
* **Reduced Benefits/Hours** → Employers may cut overtime pay, healthcare, or hours to save costs.
* **Youth Unemployment** → Firms favor older workers over younger, cheaper staff (if age-based wage tiers exist).
72
In which labour market diagram does a minimum wage not cause unemployment?
In a monopsony
73
Arguments for executive pay ceilings
* Equity and fairness:
* Damages social cohesion when the super-rich see their pay and earnings soar
* Shareholders are reluctant to impose controls on pay at the AGM, many are passive investors
* The high bonus culture encourages short-term decision-taking rather than focusing on the long-term strategic direction of a business
* Huge levels of executive pay contribute to growing income and wealth inequality in society
* The average FTSE 100 CEO earns 109x the mediam UK worker (2021)
* Proposal - cap CEO earnings at a ratio of 20:1 compared to their average employee's salary
* Idea is to limit executive pay and use the money for increasing salaries of other employees
74
Arguments against executive pay ceilings
**Talent Drain**: Caps may deter global executives ➔ UK loses top talent to uncapped markets (e.g., US/Switzerland). ✅ Strong in competitive sectors ❌ Weak if non-wage factors attract talent.
**Business Relocation**: Firms may move HQs/jobs abroad (e.g., EU bonus caps ➔ shifts to NYC/Asia). ✅ Likely for multinationals ❌ SMEs less affected.
**Loopholes**: Caps incentivize opaque rewards (e.g., shares/perks). ✅ Post-2008 evidence ❌ Stricter regulation possible.
**Industry Disparity**: Fixed multiples (e.g., 20x) hurt low-wage sectors (hospitality vs. finance). ✅ Sector distortion ❌ Sector-specific caps complex.
75
Factors that influence labour demand in an industry such as construction
* **Price of the good**: ↑ prices → ↑ MRPL → more workers hired. Tied to economic growth.
* **Labour productivity**: ↑ worker output → higher MRPL. Firms hire more if MRPL > wage.
* **Substitutes**: Robotics/AI substitutes ↓ labour demand if cheaper. Substitution costs matter.
76
Explain how robotics / artificial intelligence might impact on demand for labour in occupations of your choice.
These technologies have the potential to replace human workers in a variety of occupations. For example, robots can perform tasks such as welding and surgery. AI is being used to develop self-driving cars and trucks, which could reduce the need for human drivers.
77
Positive effects on labour demand of technologies such as AI
1. **Derived demand**: AI will create new jobs for engineers, programmers, and technicians.
1. AI might allow **smaller businesses** to thrive and grow as they benefit from easily accessible technologies.
1. AI might create **new markets and industries** such as developing new medical treatments and creating new forms of entertainment
78
Causes of geographical immobility in the UK labour market
* **Housing costs**: High rents/purchase costs; housing eats into income.
* **Living costs**: Variable childcare, transport, and food prices (IFS: moving costs up to £10k).
* **Social ties**: Strong family/friend ties; 1 in 5 willing to relocate (JRF study).
79
Policies to improve geographical mobility in the UK labour market
1. Rent controls / reforms to rental sector to improve rights of tenants including ban on no-fault evictions
1. Increases in new housebuilding with legal requirements for constructing affordable homes
1. Infrastructure investment to expand the transport network + possible caps on fares
80
Why are mean earnings greater than median earnings in the UK?
If the pay of a small fraction of individuals at the top end of the income spectrum are exceptionally high, it can result in a higher mean earnings figure. For example, the super-high earnings of many UK CEOs. Median earnings of FTSE-100 CEOs in 2022 was £3.4 million.
81
Interventions that might offset or reduce the monopsony power of employers in certain industries / occupations
1. **Minimum wage laws** that set a legally-enforced pay floor in the labour market. When enforced, this can help to ensure that workers are paid a fair wage, even in industries where there is monopsony power.
1. **Regulations & laws** such as allowing trade union representation, outlawing gang-masters, equal pay legislation, employment protection laws
82
Reasons for the long–run decline in UK trade union membership
1. **Structural change in employment** from heavy manufacturing and large public sector employment to a more flexible labour market dominated by services where unionisation rates are much lower.
1. **Globalisation and flexible hiring** – many multinationals make it harder for trade unions to organise. The rise of the gig-economy has led to a rise in contingent, non-contracted, self-employed workers - most of whom are not TU members
83
Factors that affect trade union bargaining power in the labour market
1. **Union density and membership**: Higher union density means can provide unions with more negotiating leverage. This links to the credible threat of strike power and the commercial effects of strikes.
1. **Economic climate**: In times of rapid GDP growth, falling unemployment, and skilled labour shortages, unions may have greater bargaining power due to the scarcity of skilled workers. Consider recent pay rises for thousands in logistics
84
How are wages determined when a monopsony
employer negotiates with a trade union?
Monopsony employer have buying power when hiring labour. They use can this power to pay a wage lower than the MRPL. Trade Unions might help to counter-balance monopsony exploitation.
85
Factors that might explain the gender pay gap in the UK labour market
1. **Age and the glass ceiling effect**: A substantial gender pay gap emerges among full-time employees aged 40 and over. This links to many women taking a career break. Women may face systemic barriers, such as gender bias, stereotypes – both discriminatory practices – a good example of bounded rationality of employers.
1. **Occupational clustering effects** - In many jobs such as social care, accommodation and food services – pay is relatively low with limited trade union representation – but there is a high concentration of females working in these occupations.
86
Why might a trade union–induced wage increase in a competitive labor market not lead to decreased employment?
* **Efficiency Wage Effects**: Higher wages boost productivity—by reducing shirking, lowering turnover, and improving morale—which can offset increased labor costs.
* **Inelastic Labor Demand**: In roles where labor is hard to replace with capital or technology (e.g., skilled positions), demand remains relatively stable despite wage increases.
* **Increased Aggregate Demand**: Higher wages raise disposable income, stimulating consumer spending and local demand that supports employment.
* **Reduced Turnover Costs**: Lower employee attrition saves on recruitment and training expenses, making it easier for firms to manage higher wages without cutting jobs.
