The Labour Market Flashcards
What is the MRPL?
How is it calculated?
=marginal revenue product of labour
MR x MP= MRPL
What is the MRPL graph?
What could shift it right?
- Y axis= wage
- X axis= labour
- MC straight line
- MRPL downward sloping
- improved training+better capital/management
- price of firms output increases due to an increase in demand for product
What is net advantage?
What is the graph?
Net advantage includes:
•welfare derived from the wage
•welfare derived from satisfaction
- Y axis= wages
- X axis= quantity of labour
- supply curve shifts depending on ^
- less satisfying=higher wages to compensate
- more satisfying= lower wages as high supply
What is the backward bending supply curve for labour?
- substitution effect (lower half)= as hourly wage rate rises, becomes more attractive to do over-time than leisure time
- income effect (upper half)= as hourly wages rise, achieving ideal income is easier so can afford more leisure time, so supply decreases
Explain the perfectly competitive labour market
•ruling wage rate set (W1) which cannot be influenced by individual firms
•all workers perfect substitutes
•firm would not increase wage rate above W1 as workers are supplied at lower, no need
^ higher production costs l, X-inefficiency (AC higher than necessary)
•firm would not decrease wage rate as workers would not work for that rate, no sense
AC and MC in a perfectly competitive labour market?
W1=AC=MC
AC= total wage costs / number of workers employed
MC= addition to a firms total cost of production resulting from employing one more worker
How does a monopsony work?
=a single buyer of labour in a market, e.g Government main employer of soldiers for defence
✔️producer surplus= find capital investment+R&D
✔️cost-savings for large firms, e.g NHS
✖️exploitation of workers
✖️larger firms can outsource supply, making it harder for smaller firms
What are transfer earnings?
What is economic rent?
= minimum payment needed to keep a factor of production at its present use, e.g min which has to be paid to keep a worker at their current job
= surplus payment above transfer earnings
Why are there wage differences in imperfectly competitive labour markets?
- immobility of labour
- different elasticities of demand and supply of labour
- wage discrimination
- effect of trade unions
- effect of different pay determination, e.g collective bargaining
What is the immobility of labour?
- Occupational= workers are prevented by either natural (physical strength) or artificial (racism) barriers from moving to a different type of job
- Geographical= financial costs of moving to a job vacancy located at a distance from place of residence
How does elasticity determine the demand for labour?
The supply of labour?
DEMAND= •proportion of labour cost to total (Higher proportion, higher elasticity) •availability of substitutes •price elasticity of demand for final product
SUPPLY=
•more unskilled labour, more elastic
•size of unemployed people in industry
What is wage discrimination?
What are some facts? (2)
=paying different workers different wages for doing the same job
- men in full-time employment earn £567 per week more than women
- working women’s pay levels drop by 4% with each child they have
What is a trade union?
How can they effect wages?
=an organisation of workers who join together to further their own interests through “collective bargaining”
- enter into bargaining with employers
- achieve a “mark-up” e.g premium wage
What is the effect of a trade union on a previously perfectly competitive labour market?
What is the effect on a monopsony market?
Perfect= wage rate increases, causing the supply curve to kink as they must set the new wage rate to get workers; to gain more workers, the wage rate must increase
Monopsony= increases both the wage and employment rates
How does the national minimum wage effect the labour market?
Same diagram as discrimination.
In 2016:
£6.70 per hour for >21
£5.30 per hour for 18-20
£3.72 per hour for
