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A-level Economics Yr 12 Mine > 6 - The Labour Market > Flashcards

6 - The Labour Market Flashcards

1
Q

Why is a Labour a derived demand?

A

This means that the demand for labour comes from the demand for what it produces. For example, the demand for people who make cars is derived from the demand for cars. With no demand for cars, there will be no demand for car manufacturers.

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2
Q

What is the demand for Labour directly related to?

A

How productive labour is and how much the product is demanded

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3
Q

What is the elasticity of demand for Labour linked to?

A

Linked to how price elastic demand for the product is.

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4
Q

What will the wage rate cause on supply and demand for Labour that all other factors can’t?

A

The wage rate will lead to movements along the supply and demand curves for labour.
All other factors will shift the curves.

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5
Q

What is the demand for Labour affected by? (6 points)

A
  • The Wage Rate
  • Demand for Products
  • Productivity of Labour
  • Substitutes for Labour
  • How profitable the firm is
  • The number of firms in the market
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6
Q

How is the demand for Labour affected by the Wage Rate? (Draw a diagram, Labour demand curve)

A

The downward sloping demand curve shows the inverse relationship between how much the worker is paid and the number of workers employed.
When wages get higher, firms might consider switching production to capital,
which might be cheaper and more productive than labour.

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7
Q

How is the demand for Labour affected by the Demand for products?

A

Since the demand for labour is derived from the demand for products, the higher the demand for the products, the higher the demand for labour.

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8
Q

How is the demand for Labour affected by productivity of Labour, and how can this be increased?

A

The more productive workers are, the higher the demand for them.
This can be increased with education and training, and by using technology.

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9
Q

How is the demand for Labour affected by substitutes for Labour? (Draw a graph to demonstrate)

A
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10
Q

How is the demand for Labour affected by how profitable the firm is?

A

The higher the profits of the firm, the more Labour they are able to employ.

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11
Q

How is the demand for Labour affected by the number of firms in the market?

A

This determines how many buyers of labour there is. If there is only one employer, for example the NHS, the demand for labour is lower than if there are many employers, such as in the supermarket industry.

The lower demand for labour can mean wages are lower, so trade unions try to encourage higher wages

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12
Q

What is the Marginal productivity theory of the demand of Labour?

A

This theory states that the demand for labour is dependent on the marginal revenue
product (MRP).

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13
Q

How is MRP calculated?

A

MRP = MP x MR
(marginal product x marginal revenue)

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14
Q

What does the elasticity of demand for Labour measure?

A

How responsive the demand for Labour is when the market wage rate changes.

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15
Q

What affects the elasticity of deman for Labour?

A
  1. How much labour costs as a proportion of total costs. The higher the cost of labour as a proportion of total costs, the more elastic the demand. Labour costs are high as a proportion of total costs in the services.
  2. The easier it is to substitute factors, the more elastic the demand for labour, because firms can easily to switch to cheaper forms of production, such as capital.
  3. The PED of the product also affects labour. The more price elastic the product, the more price elastic the demand for labour.
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16
Q

Explain this diagram.

A
  • The wage rate and level of employment is affected by shifting the demand or supply curve differently, depending on how elastic the other curve is
  • If labour demanded is inelastic, because there are few or no substitutes, strikes will increase the wage rate but not affect the employment rate significantly
  • Where there is an inelastic demand for labour, a lower supply will lead to a higher increase in the wage rate (P1->P3), than where there’s a more elastic demand (P1->P2)
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17
Q

What is the marginal physical product of labour?

A

The addition to a firm’s total output brought by employing one more worker.

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18
Q
A
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19
Q

How does a change in technology shift the demand curve for labour?

A

To the right - if labour becomes more productive than other forms of production, then more labour will be demanded.

To the left - as firm could employ capital instead of labour, therefore reducing the demand for labour. People may lose their jobs as less people are needed to create the same product.

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20
Q
A
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21
Q

How is the supply of labour calculated?

A

The supply of labour is calculated by the number of workers willing and able to work at the current wage rate, multiplied by the number of hours they can work

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22
Q

What is the difference between Monetary and Non-monetary considerations used to influence the amount of workers that are willing to supply?

A

Monetary - the wage, the amount of money earning from doing the job.

Non-monetary (SATISFACTION AND DISSATISFACTION) - how satisfied the workers are with their job and their working conditions, enjoy it and safe working envronment. Time for family time.

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23
Q

What causes a shift in the supply curve of labour?

A
  • Change in expectations
  • Changes in income/Leisure Time
  • Migration
  • Training
  • Taxes and Benefits
  • Trade Unions
  • Advantages of Work
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24
Q

What does the supply of labour curve show and why is it upwards sloping?

A
  • The relationship between the wage rate and number of workers willing to work in an occupation.
  • The upward sloping labour demand shows how there is a positive relationship between wage rate and number of workers willing to work.
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25
Q

How does a change in income/leisure time cause for shift in the supply curve of labour?

A

Leisure is a substitute of work, so people need to decide whether to spend their time on work or on leisure.
It reasonable to assume that leisure is a normal good for most, so a rise in income increases the demand for leisure time, so shift the labour supply curve to the left. But for some people leisure is an inferior good, higher income reduced the demand for leisure time, increasing labour supply.

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26
Q

How does migration cause for shift in the supply curve of labour?

A

Migrants are usually of working age, so the supply of labour at all wage rates tends to increase. Migration particularly affects the supply of labour at the lower wage rates, because migrants are usually from economies with average wages lower than the UK minimum wage.

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27
Q

How does changes in expectation cause for shift in the supply curve of labour?

A

If older people expect to live longer, they become less optimistic about their future pensions, this could increase the labour supply. And if there are rise of people staying in higher education will tend to reduce the labour supply. Trade occupations will have a low supply of labour if people choose to carry on to higher education

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28
Q

How does Trade Unions cause for shift in the supply curve of labour?

A

These could attract workers to the labour market, because they know their employment rights will be defended. However, the limits on workers, such as limiting their ability to strike, might cause some people to withdraw from the labour market.

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29
Q

How does Taxes and Benefits cause for shift in the supply curve of labour?

A

If taxes are too high and benefits are too generous, people might be more
inclined to withdraw from the labour market.

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30
Q

How does Training cause for shift in the supply curve of labour?

A

If a lot of training or high qualifications are required for a job, then the supply of labour may fall. However, if the government subsidise training, it is easier for workers to gain the necessary skills for a job, so the supply of labour could increase.

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31
Q

How does Advantages of work cause for shift in the supply curve of labour?

A

This can influence how much people prefer to work, and is linked to non- monetary advantages. If the cost of working is lower, so families can afford childcare, people are more likely to work. If the benefits of working are high, such as holiday entitlements and the potential to be promoted, the supply oflabour is likely to increase. It also considers job satisfaction and how good the working conditions are.

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32
Q

What is the elasticity of supply of labour and formula?

A

Proportionate change in the supply labour following a change in the wage rate.

= Proportionate change in quantity of labour supplied / proportionate change in the wage rate

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33
Q

What are the factors that affect wage elasticity of supply of labour?

A
  • Unskilled Labour is more elastic than the supply of a particular type of skilled Labour. Because the trining period of unskilled workers is usually short, and the skills required are unlikely to e restricted to a small percentage of the population.
  • Occupational and geographical mobility, more mobile more elastic.
  • Long-run more elastic than the short run.
  • And the availability of unemployed workers increases elasticity.
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34
Q
A
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35
Q

What is meant by the labour market is a factor market?

A

The supply of labour is determined by those who want to be employed (the employees), whilst the demand for labour is from employers.

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36
Q

Where is the labour market equilibrium determined?

A

Labour market equilibrium is determined where the supply of labour and the demand for labour meet. This determines the equilibrium price of labour, i.e. the wage rate.

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37
Q

Draw a diagram wage determination in a perfectly competitive labour market?

A
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38
Q

Draw a diagram wage determination in a perfectly competitive labour market?

A
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39
Q

How do you calculate average cost of labour?

A

= Total wage cost / number of workers employed

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40
Q

What is the marginal cost of Labour?

A

The addition to a firms total cost of production resulting from employing one more worker.

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41
Q

Draw the change in this diagram if the retirement age was raised.

A
42
Q

Draw the change in this diagram if the economy went into recession.

A
43
Q

How ever what does ‘Keynes’ say is wrong with this wage determination in a perfectly competitive labour market?

A

However, in the real labour market, wages are not this flexible. Keynes coined the phrase ‘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.

44
Q

If MRP = W (wage) what does this mean?

A

The firm is employing the number workers consistent with profit maximisation.

45
Q

What is a monopsony?

A

There is only one buyer in the market. Normally labour.

46
Q

What cause imperfections in the labour market?

A
  1. Monopsony
  2. Trade unions
  3. Discrimination
  4. Difficult to measure productivity
  5. Firms, not profit maximisers
  6. Geographical immobiliities
  7. Occupational immobilities
  8. Imperfect information
47
Q

What power is given to the monopsony when there is one buyer of labour in the market?

A

This gives the firm market power in employing workers. The monopsony can set (lower) wages and limit the quantity of workers.

48
Q

Draw the monopsony diagram.

A
49
Q

Explain this monopsony diagram. (Simplified)

A

The marginal cost of adding an extra worker is more than the average cost. This is because in order to employ another employee the firm has to pay all of their workers more.

At MC = MRP, the firm profit maximises. This means they employ Q2 workers. This makes the wage W2, lower than the market equilibrium competitive wage. The employment rate and the wage rate are below those that would exist in a perfectly competitive labour market.

50
Q

Explain this monpsony diagram (detailed).

A
51
Q

Explain how Trade Unions cause for imperfections in the labour market?

A

If trade unions are pushing for higher wages above the market equlibrium, the labour market is likely to be more flexible. Trade unions can also increase job security. Higher wages can be demanded by limiting the supply of labour, by closing firms, or by threatening strike action. Higher wages could cause unemployment, however. Trade unions can counter-balance exploitative monopsony
power.

52
Q

Explain how Discrimination cause for imperfections in the labour market?

A

Discrimination on racial, religious, age and gender. Affect supply of labour as people may be unwilling to work alongside these people so won’t want to work there. And demand as people a,y not want to employ these type of people.

53
Q

Explain how Imperfect Information cause for imperfections in the labour market?

A

Some qualified workers might not be aware of higher paying jobs in other industries or with other firms. Some workers might not understand the long term benefits of investing in improving their skills and education. This can limit the productivity and potential progression of workers. It makes the market
inefficient.

54
Q

Explain how Occupational Immobilities cause for imperfections in the labour market?

A

Even at periods of full employment (strong economic growth) workers can be unemployed due to occupational immobilities. This involves having inadequate skills to switch to new jobs. In a fast-changing economy, some workers can be left behind when old industries close down and their former skills are not transferable to new jobs. For example, coal workers had no new skills when margret thatcher closed the coal mine down.

55
Q

Explain how Geographical Immobilities cause for imperfections in the labour market?

A

In the north (e.g. Sunderland), wages tend to be lower because there are less demand, higher unemployment and more elastic supply curve of labour. In the South, wages tend to be higher for the opposite reason – firms are more profitable and are willing to pay higher wages.

In theory, workers from the north could move to the south to take advantage of better employment opportunities. However, there are likely to be geographical immobilities, like:

  1. Workers have attachments to their local communities – friends, children at local schools.
  2. Difficult to find housing in the south. (Very expensive and low paid jobs in the north can’t pay this).
  3. Poor information about jobs elsewhere
56
Q

Explain how cause for imperfections in the labour market?

A
57
Q

What are trade unions?

A

A group of workers who join together to maintain and improve their conditions of employment including their pay.

58
Q

What can trade unions do to get their way?

A
  • Strikes (along as majority of members vote to do so)
  • Collective Bargaining, a process by which wage rates and other conditions of work are negotiated and agreed upon by union with an employer.
59
Q

What is the diagram for trade unions in a competitive labour market?

A
60
Q

Explain the diagram for a trade Union in a competitive labour market.

A

The first point is that the market would immediately become imperfectly competitive. Without a trade Union the competitive wage rate is W1. The Union uses collective bargaining to a rise a minimum wage at W2.
Without the Union the supply curve of labour is the upward sloping line labelled S=AC. With the Union supply of labour is the kinked line W2XS.

61
Q

What is the diagram for trade unions in a Monopsony?

A
62
Q

Explain this diagram for trade unions in a monopsony.

A
63
Q

What are the benefits of trade unions?

A

Trade unions can provide counter-balance to monopsony – increasing wages and employment for their members.
Trade unions can represent workers in disputes over health and safety and disciplinary matters.
Trade unions can increase wages – which leads to increased spending in the economy.

64
Q

What are the costs of trade unions?

A

Trade unions can push wages above the equilibrium. Therefore fewer people are employed by the firm – this leads to a loss of earnings to those outside the trade unions.
Time lost due to strike action.
Trade unions bargaining for higher wages can cause cost-push inflation. In the 1970s, union activity was responsible for some of the cost-push inflation of that period. Though unions were also trying to protect wages against the higher inflation.

65
Q

What determines the success of trade unions?

A
  1. The density (% of the workforce in the trade union).
  2. Bargaining power of workers, e.g. power plant workers have more economic leverage than supermarket shelf stackers.
  3. Economic climate – is the firm highly profitable or struggling to survive?
  4. Government legislation. e.g. since the 1970s, UK government has reduced the power of trades unions, e.g. abolishing closed shops, outlawing secondary picketing.
  5. Nature of labour markets – competitive vs monopsony.
66
Q

And what has caused for the decline of membership in trade unions since 1979?

A
  1. Deindustrialisation. Decline of the manufacturing sector where unions were once strong. (e.g. coal and steel industries.
  2. Union legislation:
    - Ended closed shops (where a worker had to be in a union to be employed – giving a union 100% density.
    - Secondary picketing outlawed. E.g. you can’t strike in sympathy of another union.
    - Ballot necessary for a strike. Political levy must come from a vote
  3. Growth of service sector at the expense of manufacturing sector
  4. Growth of part-time/ temporary jobs/gig economy.
67
Q

What is the problem with a monopsony?

A

Monopsony can lead to lower wages for workers. This increases inequality in society.

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.

68
Q

Examples of monopsony.

A

Coal mine owner in town where coal mining is the primary source of employment.
The government in the employment of civil servants, nurses, police, train drivers and army officers

69
Q

What is the National minimum wage?

A

A minimum wage or minimum price that must be be paid by law to employees. However many wages are higher than this in labour markets.

70
Q

1 .What is the National Minimum wage for 21 and over from April 2024?

  1. What is the London living wage April 2024?
A
  1. £11.44
  2. £13.15
71
Q

What is the diagram for National minimum in a competitive labour market?

A
72
Q

What is the reason for the Minimum Wage but what is the main consequence free-market economists are against?

A

The aim of the National Minimum Wage is to help increase incomes of the low paid. It has become more important in a labour market characterised by a decline in trade unions and the growth of low-paid service sector jobs.

Free market economists argue a National Minimum Wage would lead to unemployment because firms cannot afford to pay the workers.

73
Q

What has theory has been disproven from introducing the National minimum wage?

A

There has been no evidence of a rise in unemployment with a rise in the NMW so far in the UK. Since 1999 when it was introduced there has been record levels of employment.

Some people say this is due to the fact that the NMW is still relatively low. And that is too low to be a living wage.

74
Q

What year was the National Minimum Wage introduced?

A

1999

75
Q

What are the advantages of National Minimum Wage? (5)

A
  1. Reduces Poverty
  2. Increases productivity
  3. Increases incentives to accept a job
  4. Increased Investment
  5. Counterbalance the effect of monopsony
76
Q

What are the problem with National Minimum Wage? (6)

A
  1. unemployment
  2. Regional Variations in wages
  3. Higher wage passed onto consumers (cost-push inflation)
  4. Limited impact on relative poverty and the poorest.
  5. People stuck on the National minimum wage
  6. Firms may become uncompetitive
77
Q

How is Reduced Poverty an advantage of the National Minimum wage?

A

The minimum wage increases the wages of the lowest paid. These workers will have increased income and will reduce relative poverty.

78
Q

How is increased productivity advantage of the National Minimum wage?

A

The efficiency wage theory states that higher wages can increase the incentive for people to work harder and thus higher wages may increase labour productivity. If firms have to pay higher wages, they may put more focus on increasing labour productivity, which increases efficiency of the economy

79
Q

How is increased incentive to accept a job advantage of the National Minimum wage?

A

With a minimum wage, there is a bigger difference between the level of benefits and the income from employment. A minimum wage could also increase the participation rate as the benefits of work become greater and more worthwhile.

80
Q

How is increased investment an advantage of the National Minimum wage?

A

Firms will have an increased incentive to invest and increase labour productivity because labour is more costly. In the long-term, this can encourage greater investment and labour productivity – an economy based on high value added, rather than competing on low wages.

81
Q

How is the fact it can counterbalance the effect of monopsony’s an advantage of the National Minimum wage?

A

If firms have Monopsony power they can drive wages down by employing fewer workers. However, minimum wages will make this more difficult. Therefore a minimum wage could have a positive effect on employment.

82
Q

How is unemployment an disadvantage of the National Minimum wage?

A

If labour markets are competitive, a minimum wage above the equilibrium could cause a fall in demand for workers, and excess supply

83
Q

How is Regional Variations in wages an disadvantage of the National Minimum wage?

A

A big problem with a national minimum wage is that wages vary enormously within the UK. In London, with higher costs of living, not many people get the minimum wage because wages are relatively higher. However, in some areas, a minimum wage of £9 could cause significant unemployment, especially in labour-intensive industries. It is estimated that in 10 hot spot low pay areas 30% of workers are on the Minimum Wage.

84
Q

How is higher wages being passed onto consumers (cost-push inflation) an disadvantage of the National Minimum wage?

A

An increase in the minimum wage could cause firms to increase prices and pass the costs onto consumers

A minimum wage can cause cost-push inflation. This is because firms face an increase in costs which are likely to be passed on to consumers. This is even more likely if wage differentials are maintained.

85
Q

How is more workers being stuck on the National minimum wage an disadvantage of the National Minimum wage?

A

More than 1 million workers receive the minimum wage. The highest proportion are amongst women, ethnic minorities and young people. The fear is that a minimum wage encourages firms to keep more workers on the lowest band of wages.

86
Q

How is the poorest don’t benefit and limited impacts on relative poverty an disadvantage of the National Minimum wage?

A

A limitation of the minimum wage is that it doesn’t increase the incomes of the lowest income groups. This is because the poorest have to rely on benefits and are therefore not affected by minimum wages.

Many who benefit from the minimum wage are second income earners, and therefore the household is unlikely to be below the poverty line. A household with a single income earner just above the minimum wage is likely to be relatively poorer. But they will not benefit from the minimum wage

87
Q

How is firms may becoming uncompetitive a disadvantage of the National minimum wage?

A

In some cases, a higher minimum wage could push up costs causing a firm to go out of business because they may not be able to afford wage costs. This might be a particular problem if the firm is competing in a global market and higher wage costs make them uncompetitive compared to low-wage cost countries. For example, a higher minimum wage may encourage firms to manufacture clothes in China or Taiwan where labour is cheaper than the UK.

88
Q

Evaluations for National Minimum wage.

A
  • Regional minimum wage instead of National minimum wage, London very few people benefit from the NMW.
  • Limited impact on people just above the minimum wage.
  • Evidence shows the rising minimum wage has not caused unemployment, the question is how longer can it rise before it does cause unemployment.
  • Effect of.NMW on unemployment really effects on the type of labour market, monopsony will not really cause unemployment.
89
Q

What is wage discrimination?

A

Paying different workers different rates for doing the same job.

90
Q

What condition is necessary for wage discrimination?

A

Employers to be able to identify and separate different groups of workers supplying the same type of labour.

91
Q

What are the types of wage discrimination?

A
  • Gender discrimination (MAIN)
  • Ethnicity
  • Disability
  • Age
92
Q

Draw the diagram of gender discrimination on a labour market.

A
93
Q

Explain this diagram

A
94
Q

Why are women paid less than men ?

A
  • Choice of jobs
  • Discrimination against women
  • Attachment to the labour force
  • Higher labour turnover of women.
95
Q

How does choice of jobs cause for women to be paid less then men?

A
96
Q

How does gender discrimination cause for women to be paid less then men?

A
97
Q

How does women’s attachment to the labour force cause for women to be paid less then men?

A
98
Q

How does higher labour turnover of womencause for women to be paid less then men?

A
99
Q

Explain how this diagram can show the effects of gender discrimination in one market but not in another market.

A
100
Q

What is an example of gender discrimination/gender pay gap in the UK?

A

BBC released their wages for their employees. It was shown that presenters in the BBC doing the same job were paid more on average if they were men than if they were female. This lead to BBC having to cut pays of men and increase women’s pay as they were taken to court.

101
Q

What is MRPL, marginal revenue product of labour.

A

MRP = demand for labour

102
Q

Explain MRP of labour with examples.

A

If we take a premiership footballer, they have a high MRP. If they score winning goals, they can earn substantial revenue for their club (in prize money, tv rights). Therefore, if one player can make the difference of staying in Premier League, they may be worth £20m a year. Because there is a lot of money in football, the top players can demand high wages.

By comparison, if we take a retail assistant in a clothes shop, the value of clothes they sell per week will be relatively low. Therefore, their addition to profit will be relatively small, and this is a factor behind the much lower wage rates.

A-level Economics Yr 12 Mine (9 decks)

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