3.5 Labour Markets

Question 2

What is the labour market?

Answer 2

A factor market where the supply of labour is determined by employees and the demand for labour is from employers.

Question 3

What does derived demand mean in the context of labour?

Answer 3

The demand for labour comes from the demand for what it produces.

Question 4

How does the wage rate affect the demand for labour?

Answer 4

Higher wages may lead firms to consider switching to capital, reducing the number of workers employed.

Question 5

What factors affect the demand for labour?

Answer 5

• The wage rate
• Demand for products
• Productivity of labour
• Substitutes for labour
• Profitability of the firm
• Number of firms in the market

Question 6

What is the relationship between productivity of labour and demand for labour?

Answer 6

Higher productivity leads to a higher demand for labour.

Question 7

How does migration influence the supply of labour?

Answer 7

Migrants usually increase the supply of labour, particularly at lower wage rates.

Question 8

What are the factors influencing the supply of labour?

Answer 8

• The wage rate
• Demographics of the population
• Migration
• Advantages of work
• Leisure time
• Trade unions
• Taxes and benefits
• Training

Question 9

What is the difference between geographical and occupational mobility of labour?

Answer 9

• Geographical mobility: Ability to move between areas for work
• Occupational mobility: Ability to change occupations

Question 10

What is labour market equilibrium?

Answer 10

The point where the supply of labour and demand for labour meet, determining the equilibrium wage rate.

Question 11

What is ‘sticky wages’?

Answer 11

Wages that do not adjust easily to changes in demand.

Question 12

What are wage differentials?

Answer 12

Differences in pay among workers in the same job due to factors like education, skills, and discrimination.

Question 13

What impact does migration have on the domestic labour market?

Answer 13

• Increases competition for jobs
• Brings high-quality skills
• Affects wages of the lowest paid

Question 14

What are the consequences of unemployment?

Answer 14

• Reduced disposable income
• Psychological effects on workers
• Increased government spending on benefits
• Opportunity cost to society

Question 15

What is the National Minimum Wage?

Answer 15

A minimum price set above the free market price to ensure workers earn a decent wage.

Question 16

What are maximum wages?

Answer 16

A wage ceiling that limits how much income someone can earn.

Question 17

What is the impact of maximum wages on innovation?

Answer 17

Could disincentivize innovation and lead workers to choose less demanding jobs.

Question 18

What is the role of public sector pay in the UK?

Answer 18

Public sector pay is generally higher than private sector pay and is a significant part of government spending.

Question 19

What are policies to tackle labour market immobility?

Answer 19

• Trade union power
• Regulation
• Welfare payments and income tax rates
• Training
• Infrastructure
• Housing

Question 20

How does the elasticity of demand and supply of labour affect wages?

Answer 20

Shifts in demand or supply curves can affect wage rates differently depending on their elasticity.

Question 21

What are some reasons for wage gaps in the labour market?

Answer 21

• Formal education
• Skills and qualifications
• Pay gaps due to technological change
• Gender discrimination
• Other forms of discrimination

Question 22

What does the elasticity of demand for labour measure?

Answer 22

It measures how responsive the demand for labour is when the market wage rate changes.

This responsiveness is influenced by factors such as the proportion of labour costs to total costs and the ease of substituting factors of production.

Question 23

What happens to the wage rate when labour demand is inelastic and supply decreases?

Answer 23

The wage rate increases significantly, more than in cases of more elastic demand.

For example, a lower supply with inelastic demand can lead to a higher wage increase from P1 to P3 compared to P1 to P2 in elastic demand.

Question 24

What affects the elasticity of demand for labour?

Answer 24

• Proportion of labour costs to total costs
• Ease of substituting factors
• Price elasticity of demand for the product

Higher labour costs relative to total costs result in more elastic demand.

Question 25

What is the elasticity of supply of labour?

Answer 25

It is the responsiveness of the quantity of labour supplied to a change in the wage rate. ## Footnote This concept indicates how quickly workers can be attracted to jobs based on wage changes.

Question 26

What factors affect the elasticity of supply of labour?

Answer 26

* Skills of the workforce * Length of training * Sense of vocation * Time period ## Footnote Skilled jobs typically have lower elasticity due to the difficulty in attracting qualified workers.

Question 27

How does the sense of vocation influence labour supply elasticity?

Answer 27

Jobs with non-financial rewards tend to have inelastic supplies. ## Footnote An example is teaching, which may attract individuals for reasons beyond salary.

Question 28

In which time frame is the supply of labour more inelastic?

Answer 28

In the short run. ## Footnote Over time, the supply of labour can become more elastic as adjustments are made.

Question 29

What is the relationship between the price elasticity of demand for a product and the demand for labour?

Answer 29

The more price elastic the product, the more price elastic the demand for labour. ## Footnote This means that changes in product prices can significantly influence labour demand.