4.1.6 The labour market Flashcards

Question

Define the **National Minimum Wage** (NMW).

Answer 1

* A legally-enforced pay floor in labour market. * Employers can’t pay below hourly minimum wage for employees of a certain age.

Answer 2

* Evidence on NMW in UK finds there’s been no net impact of employment reductions due to min W. * Goes against theoretical analysis of impact of min W. **However, there’s evidence that some firms have:** * Higher C + lower profit margins. * Raised P to recover higher C. * Changed workforce structure- increased use of automation, increased recruitment + retention of older more highly skilled workers. * One reason given for there not being a reduction in employment is that many labour markets are imperfect where firms are paying below MRP of L + so min W leads to firms paying workers closer to their MRP. Firms can afford to give increases in W. * If LD is wage inelastic, higher minimum wage W will cause only a limited contraction on level of LD.

Answer 3

* **Poverty Alleviation + Reduces Wage Differentials:** reducing poverty + gap between rich + poor. * **Incentive To Work:** especially for those choosing to be inactive (voluntarily unemployed). Boosting labour force. * **Fiscal Benefit To Gov:** if more people now incentivised to work, gov doesn’t have to pay as much in terms of benefits + can receive more through tax rev. Can use fiscal divined to spend via using other policies to help redistribute income at some time. * **Boosts Productivity:** through a morale boost. If people are paid more, they’re likely to be more productive. * **Incentive For Firms To Boost Human Capital:** for firms who have to bare higher C of employing workers, there’s incentive to boost human capital of workers that work for them. If having to pay higher W to staff, may as well make most of staff + improve their training/productivity/skills. * **Counter Monopsonist Employer:** by gov imposing a NMW, W now under a monopsony employer will be higher + potentially E may be higher.

Answer 4

* **Unemployment:** real wage/classical unemployment- by imposing a W greater than competitive W, creates excess S of L. However, depends on elasticity- more inelastic D + S is, less impact min wage has. * **Youth Lose Out Most:** less likely to have experience/skills/productivity to justify getting min wage- harder to find a job. * **Those Not On NMW May ask For Higher W:** to keep W differential. Can increase C for businesses, bad for economy as may raise inflation. * **Cost To Businesses:** may lead to them shutting down/struggling o match C + operate efficiently. Significant risk of UK economy losing competitiveness- firms that have to pay min wage + accept higher C- may translate those C into higher P. * **Regional Differences:** in North of UK, NMW doesn’t need to be as high as in South (i.e. differences in C of living). Doesn’t account for regional differences. * **Hit To Gov Finances Given State Employment:** if gov is employing a majority of low payed workers who would be payed NMW- gov may be hurt by implementing NMW. In UK gov employs a disproportionately large number of low payed workers who are payed NMW, thus by increasing it, gov C will skyrocket + gov finances may take a hit- with potential LR consequences.

Answer 5

* NMW isn’t necessarily the best way to tackle poverty- only reaches those in work, whereas very poorest have no job, + often no chance of getting one. * **Policies to increase skills + employability:** to get people into work force- needed as much as increases in W. * In UK, for many of the poorest its not so much WR, but hours of work available (rise of part-time work) + insecure nature of work (gig economy) that impacts living standards + economic welfare. * **Legislation** to improve worker rights, conditions of work, + job security- may have a more significant impact on economic welfare in NMW.

Answer 6

* **Women Move In + Out Of Labour Force:** due to child bearing- take maternity leave + time to raise children- time where skills aren’t developing, potentially loosing key skills, not gaining any experience, will lead, ceteris paribus, to their MRP not increasing by much, or it even reducing. Thus, when they come back into work they find it very hard to obtain a higher W- in the future, earning potential is the limited. Men are more attached to workforce- don’t tend to leave labour force- thus earnings tend to be much higher than females. * **Age Of Being Economically Inactive:** women that do take time out of labour force to raise children often, the age at which they leave labour force is the age at which most people push on in their professions + obtain higher W- so for women to exit the labour force at this key time + age, significantly limits their W prospects going forward. * **Differences In Education/Qualifications:** argument doesn’t hold in developed countries, but could still hold in developing countries. Opportunity for women to be educated + gain same qualifications as males- in many developing countries, this opportunity doesn’t exist- thus women don’t have the same skills, qualifications, + MRP as males- males can bargain for much higher W, while females can’t. * **Women Work In Low-Paid Occupations:** part-time occupations- spend more time with children- part-time work typically pays less hourly than full-time work. Service-sector work-demands for job + skills for job aren’t so high (e.g. retail) can lower W + earning potential. Public-sector work- primarily female workers- public sector workers typically paid less, as gov want to control inflationary pressure + rate at which W increase in these professions. Vocational work- teaching, nursing- W kept low, due to vocational impact. Lack of TU prescience- part-time + service sector work- harder to organise TU around them + back them- therefore TU bargaining power is limited, keeping W below. * **Increase In Supply Of Female Workers:** in developed countries, easier for females to enter labour force, more socially + culturally acceptable. Drives down W, as S increases. * **Discrimination:** employers may favour male workers- despite regulations preventing this.

Answer 7

* **MRP Of Footballers Is Very High:** not just because of league position of club, but in terms of merchandise revenue, television revenue, e.t.c. Can bring in huge amount of revenue from lots of diff rev streams for a club, thus MRP is huge. * **Low Supply Of Footballers:** inelastic supply- to become a professional footballer, have to make grave sacrifices - time in school limited, amount of training + time- makes S of footballers very inelastic. D for footballers very high- clubs know if they get a really good footballer- benefits are massive. * **Monopsonist State Employer Of Teachers:** in UK dominant employer of teachers is the state- has W setting power- UK gov always keeps W relatively low- W increases minimal, as state doesn’t want to lose control of inflation objective. * **Vocational Element To Teaching:** a lot of workers go into industry not for money but because they love doing what they do. Therefore, negative compensating W differential- keeps W low. * **Reduced Bargaining Power Of Teacher Trade Unions Due To Reluctance To Strike:** only time teachers are willing to strike is when it doesn’t have much impact on pupil performance. Reduces impact of TU to bargain for higher W. * **Lack Of Homogenous Footballers:** all have different skills, backgrounds, e.t.c. As a result, firms will want each individual footballer because they’re different- willing to pay higher W because of the difference of each footballer.

Answer 8

‘North - South Divide’ in UK * **Restricting Of UK Economy + Different D For Labour:** since 1970s, UK economy moved away from manufacturing, heavy industry specialisation towards specialising in services- especially financial services- usually in London. Whereas, manufacturing, heavy-industry jobs are in North- thus, MRP of workers up North will be lower, as D for the will be much lower. * **Negative Multiplier/Accelerator Effect:** up North- falling decline of manufacturing + heavy industry sector- all workers unemployed in industries now- don’t have W potential to spend in large proportions in their economies- therefore all diff industries dependent on that spending will see a fall in D for their products. As L is a derived D, all workers in those industries may therefore become redundant as there’s less D for the products they’re selling- negative multiplier effect. Negative accelerator effect, as firms aren’t willing to I if they know the growth rates in that region/economy are falling- reduces W growth potential. * **Occupational + Geographical Immobility In North:** lots of workers in North are occupationally immobile- don’t have skills transferable to take jobs down South. Workers may be geographically immobile- may have family ties, refuse to move locations- reduces migration flow expected when there are large regional variances. * **Migration Of Labour To Move Prosporous Areas Is Only Of The Most Productive Workers:** migration that takes place may be only the most productive workers moving down South- most productive workers may be the ones earning the higher W up North- if they’re the ones leaving, only leaving behind the lowest paid workers- makes regional variances worse.

Answer 9

* **Minority Groups On Average Are Less Qualified:** have lower MRPs- cannot bargain for higher W, employment prospects will be low, earning potential going forward will be very low. * **Lack Of Language Proficiency:** reduces productivity + employability- especially in higher paid occupations (e.g. financial, legal services, e.t.c.)- keeps W very low. * **Concentration Of Such Workers In Low Pay Sectors:** (e.g. cleaning, car-washing, plumbing, e.t.c.) * **Living In Poorer Areas Of Country:** where D for L is low, employment prospects are low- limits W rises + earning potential- keeps W low. * **Reluctance To Migrate To Earn More:** for some ethnic groups, it’s in their culture to stay close to family- forced to stay close by + accept lower W. * **Discrimination:** illegal, but can still happen.

Answer 10

* **Incentives:** incentives to become educated, develop skills + qualifications, to boost productivity + MRP + access higher W professions. Also good for economy- higher productivity of labour force can reduce business C, make economy more internationally competitive, also means LR growth. * **Trickle Down Effect:** free-market economists argue that high W earners spend their money- creates multiplier effect throughout economy- D for goods + services in economy will pick up + those working in industries where moneys being spent will see higher W + job creation. Gov intervention through progressive income tax systems- those earning very high W- average + marginal tax rates are higher- pay more income tax- gov can use additional rev to redistribute + provide income boost to poor. * **Encouraging Enterprise:** entrepreneurs know that if they can find a way to boost their MRP, can earn an extremely high W- incentive to do so. Great for individual entrepreneur- higher W. Also good for economy- encourages LR growth- new innovation, new tech. Good for individuals on the lower end of spectrum- entrepreneurs may create jobs for them. * **Encourages Work Not Welfare:** if all labour markets were perfectly competitive, then if you’re living off welfare, there’s no incentive to get off it- if you become educated, gain skills, e.t.c, you’re only going to earn what everybody else is earning in economy. * **Promotes Efficient Resource Allocation:** to move where L is most productive, workers with relevant skills will move to where W are higher. Workers end up in professions where they’re productive- boost to economy.

Answer 11

* **Income Inequality:** bad for individuals on low incomes- face poverty, living standards are lower. Bad for economy as gov has to spend more on employment benefits, welfare spending. Can reduce growth in LR- poor have highest MPC- if their incomes are restrained, it restrains spending in economy. Whereas rich have highest MPS- if they have larger salaries, they’re not necessarily going to spend a lot of it. Social costs- higher crime rates, higher depression, higher divorce rates, greater protests- leads to negative externalities- gov has to spend more on police services, courts, health-related services. * **Trickle Down Effect May Not Occur:** may not hold in real-world- high income earners may S more- multiplier benefits through spending may not occur. May send their money abroad- move money to other economies to get a greater rate of return- doesn’t generate higher W for those on lower W, doesn’t create jobs through multiplier effect. May avoid paying tax- any redistributive policy through higher T may not occur. * **Gov Solutions Limited If They Are Monopsonist Employer:** (e.g. teaching, nursing, e.t.c.). Gov wont want to increase W- overshoots inflation target. Thus, W always stay relatively low- becomes hard for gov to deal with it. W variance likely to get worse not better.

Answer 12

* **How Much Inequality:** compare C + benefits. If income inequality is small, likely to be more benefits then negatives. If more relatively large- likely to be more negatives- in LR if W variances persist + get worse- negatives are a massive issue. * **Risk Of Gov Failure:** if there’s a risk of gov failure- let W differences persist, even if major issues. If gov intervene they’ll raise T, impose min wage, higher unemployment benefits- may make things worse, distorts incentives (Laffer curve argument). * **SR Vs. LR:** in SR there may be some issues due to income inequality. However, in LR due to trickle down effect, through entrepreneurship benefits- may be greater benefits to individuals- lower C, lower P, access to new tech, innovation, higher W (due to trickle down effect). However, SR issues (income inequality) may persist + worsen.

4.1.6 The labour market Flashcards

(36 cards)