3.5.3 Flashcards
Labour market equilibrium
Determined by where the supply of labour and the demand for labour meet
What happens if the demand for labour falls
In a free market the wage rate would fall
What happens if the supply of labour increases
The wage rate would fall
Keynes ‘sticky wages’
Wages in an economy do not adjust to changes in demand
The minimum wage makes wages sticky and means that during a recession, rather than lowering wages of several workers, a few workers might be sacked instead
Wage differentials
Formal education
Skills, qualifications and training
Pay gaps
Wages and skills
Gender
Discrimination
The impacts of migration on labour markets
- there could be more competition to get a job due to the rise in the size of the working population
- migrants tend to bring high quality skills to the domestic workforce, which can increase productivity and increase the skill set of the labour market, increases global competitiveness
- migrant labour affects the wages of the lowest paid in the domestic labour market, by bringing them down
- the skills of migrant labour could substitute those of the domestic market, so workers could be replaced
What was the employment rate in the UK aim December 2014
Peaked at 73.2%
Then fell to 70.1% during the period of financial crisis
What is the unemployment rate now as of February 2015
5.4%
What happens if consumers are unemployed
They have less disposable income and their standard of living may fall as a result
What does unemployment create
Creates an opportunity cost to society, since workers could have produced goods and services if they were employed
Could also be negative externalities in the form of crime and vandalism
What is hysteresis and how is it related to youth unemployment
This is a type of structural unemployment
When someone is out of work for a long time so their skills deteriorate
They might not want to work at all as an adult
Minimum price
The national minimum wage is and example of minimum price
The minimum wage has to be set above the free market price, just like other minimum prices, otherwise it would be ineffective
Link between unemployment and national minimum wage
There has been no evidence of a rise in unemployment with a rise in the national minimum wage so far in the UK
Some firms say the national minimum wage is relatively low
Externalities of the national minimum wage
The national minimum wage will yield the positive externalities of a decent wage, which will increase the standard of living of the poorest, and provide an incentive for people to work
Maximum wage
Limits how much income someone can earn
Used by a means to redistribute wealth more equitably in society
Maximum wages must be set below the free market equilibrium wage to be effective
Maximum wages control the market wage, but this could lead to government failure if they misjudge where the optimum wage should be
It could lead to more equal distribution of wealth in society
Government interventions in the labour market
-Maximum and minimum wages
-Public sector wage setting
-Policies to tackle labour market immobility
-Trade union power
- regulation
- welfare payments and income tax rates
- training
- infrastructure
- housing
Public sector wage setting
The public sector is the compilation of industries owned by the government
Is public sector pay higher or lower than private sector
The public sector pay is higher than the private sector in raw terms
In 2008-2010, public sector grew by 4.5% relative to the private sector 1%
Flexibility of the labour market
The flexibility of the labour market is how willing and able labour is to respond to changes in the conditions of the market
It is important for labour to be able to adjust to changes in demand, and it is vital for the supply side of the economy
Trade union power
If trade unions are pushing for higher wages, the labour market is likely to be more flexible
Trade unions can also increase job security
Regulation
The more freedom firms have to hire and fire workers and the more freedom workers have in terms of their rights, the more flexible the labour market
Excessive regulation limits flexibility
Welfare payments and income taxes
The reward for working should be high
Training
More widely available training opportunities and a more skilled workforce makes the labour market more flexible
Infrastructure
Improving infrastructure might help the geographical immobility of labour, since it becomes easier to move around the country
