labour market issues and imperfections (which impact wage determinaton)

Question 1

what are the labour market failures

Answer 1

disincentives
monopsonys
immobility of labour
labour isnt homogenous
wage differentials e.g gender pay gap

Question 2

what policies can be used to tackle labour market failure

Answer 2

NMW
maximum wages

Question 3

what policies cant he government use to overcome the gender pay gap

Answer 3

subsidise childcare
equal pay legislation
give fathers longer paternal leave

Question 4

why may the gender pay gap exist

Answer 4

women may take more career breaks compared to men-> may have a lower MRP as men take less time off work so they have more time to accumulate their skills
they may use this to justify the gap between their pay
access to education
patterns of employment of women - may take on more vocational roles

Question 5

how would you show discrimination on a labour market diagram

Answer 5

demand for labour dhifts inwards
lower wage for those who are discriminated against

Question 6

what could be the impacts of NMW + ev

Answer 6

incentivises people to work
reduce poverty
reduce income inequality gap
more tax rev for the govt
encourages firms to train their workers
could improve productivity

depends on the level at which the NMW has been set
could reduce employment
depends on PED of demand for labour
should all occupations have the same NMW?
different costs of living in different regions
depends on the state of the economy and whether firms are sufficiently profitable to be able to absorb a higher minimum wage

Question 7

what impact would NMW have if the demand for labour was inelastic

Answer 7

demand for labour wont fall by much
workers cant be replaced by machinery or there may not be many of these workers available
fall in (involuntary) unemployment wont be as large

Question 8

what arguments can be made against the NMW

Answer 8

may increase unemployment as it would increase cost of p for firms
may make products less internationally competitive
inflation due to higher labour costs - reduces real incomes for households
many of the poorest in society arent in work so NMW may not reduce poverty
excess supply of labour leads to unemployment
hysteresis argument for the youth
different costs of living in different regions

Question 9

arguments for the maximum wage

Answer 9

rato pay of executives to ordinary workers has grown to unacceptable levels
lnk between executive pay and perfomance is hard to tell
bnus culture encourages short term decision taking rather than fpcusinf on long term strategic direction of the busieness
rise in wages can cause inflation
can lower income inequality

Question 10

arguments against max wage

Answer 10

may lead to businesses re locating overseas
could lead to less inward migration as peoples pay will be capped
higher pay can provide motivation tow work harder
brain train
higher marginal tax rates may be a better option

Question 11

what are the current labour market issues

Answer 11

zero hour contracts
gig economy
robotics and AI
gender pay gap
labour migration
trade unions

Question 12

what is the gig economy

Answer 12

fragmented work where someone is given a task for a certain amount of time
short term contracts and free lance work
for example uber

Question 13

what are the benefits of the gig economy

Answer 13

for worker:
flexible hours
can work from home
another source of income
less risk of being stuck in routine jobs

for firms:
reduced fixed costs for firms due to lower payroll expenses
reduced investment
flexibility in managing hours to expected demand for their products

Question 14

what are the drawbacks of the gig economy

Answer 14

for workers:
doubts over true flexibility of hours
lack of paid vacation, sick leave, employment rights
difficult to obtain a mortgage due to job and income uncertainty
inadequate investment in training
workers bear most of the risk- incomes tend to be lower for the self employed

wider downsides:
less tax rev for the govt
reductions in road safety
the delivery drivers using unlicsenced vehicles

Question 15

what are zero hour contracts

Answer 15

while some workers may have a permanents contract they arent guaranteed a minimum number of working hours each week

Question 16

what are the arguments for zero hour contracts

Answer 16

good for businesses where demand for labour is seasonal- allows businesses to better control their costs
benefits people who want high levels of flexibility in choosing when they want to work

Question 17

what are the arguments against zero hour contracts

Answer 17

contributed to ‘in-work poverty’ - reliance on top up welfare benefits
uncertain incomes make it difficult for people to obtain loans, mortgages etc

Question 18

what are the benefits of an ageing population

Answer 18

wage increases for younger people as they become more scarce
more jobs in caring for the elderly - changes in employment patterns

Question 19

what are the drawbacks of an ageing population

Answer 19

reduction in working age population which leads to reduction in supply for labour so theres less people paying taxes -> makes it difficult to fund pensions/the nhs
a greater proportion of the working age being older could reduce productivity and competitiveness
need for more migration of young and skilled workers
tax rate increases to cover the cost of increasing the number of elderly people which could reduce the incentive to work
decrease availability of houses as people are living longer
people may not have saved for their retirement

Question 20

how can the issue of funding pensions be resolved

Answer 20

auto enrolment into pensions
more people would have a private pension
less need for increases in state pensions provided for by the government as the elderly can support themselves

Question 21

what micro and macro policies can be used to address an ageing population in the UK

Answer 21

labour market reforms
auto enrolment into occupational pensions
new taxes on soacial care
incentives to increase the supply of sheltered housing
investment in life long learning especially for over 55s

Question 22

what impacts could robotics and AI have

Answer 22

impacts on productivity, costs and profits of firms ?
impact on demand and supply for labour
could lead to lower prices for consumers
structural unemployment or new jobs may be created?
competitiveness and exports and changing patterns of trade
effects on govt finances

Question 23

what micro and macro impacts can labour migration have

Answer 23

micro:
shortages of skilled labour
impact on demand for and prices of properties to buy and rent
brain train

macro:
fal in net outflow of remittances
impact on employment if labour supply falls
slower growth of AD and possible fall in LRAS

Question 24

what are the benefits of new inward migration

Answer 24

migrants provide skills and higher labur productivity
an increase in the size of the active labour supply
could increase LRAS
positive multiplier effects if migrants find paid work
reducing skilled labour shortages in growing industries
remittances sent home by migrants increase which could lead to rising exports
legal migrants pay direct and indirect tax -> increase tax rev for the govt

Question 25

what are the costs of inward migration

Answer 25

increasing cost of providin gpublic services displacement of domestic workers in employment social tensions arising from the problems of integrating thousands of extra workers into local areas and regions rising demand for houses which push up prices could worsen level of relative poverty in a society migrant workers may be exploited by buesinesses that have monopsony power

Question 26

how can you evaluate the effects of labour migration

Answer 26

types of people and their skills whether they find regular jobs could a rise in migration stimulate extra capital speninding on e.g new schools, hospitals etx dynamic effects - gains in innovation due to migrant entrepreneurs? whether migrants stay for long term or short term

Question 27

what are the characteristics of a perfectly competitve labour market

Answer 27

many potential workers and employers labour is homogenous perfect info firms are wage takers no barriers t entry/exit

Question 28

draw a diagram to show where wages are determined in a firm in a perfectly competitive labour market

Answer 28

Question 29

draw a diagram to show where wages are determined in an industry in a perfectly competitive labour market

Answer 29

Question 30

where do firm hire up to in a perfectly competitive labour market to maximise revenue from workers

Answer 30

firms will hire workers up to where MRP=MC

Question 31

what do perfectly competitive labour markets assume

Answer 31

if all labour markets were perfectly competitive there will be no differences in wages between professions at all due to two assumptions: 1. all workers are homogenous 2. all workers have perfect mobility

Question 32

what are the 5 labour market imperfections

Answer 32

labour isnt homogenous assumes wage only affects the supply of labour - non monetary factors may also affect this labour isnt perfectly mobile trade union and supply restriction monopsony and wage setting ability

Question 33

why is labour not homogenous

Answer 33

workers have different MRPs different industries have different supply for labour lack of perfect knowledge

Question 34

what are the 3 causes of immobility of labour

Answer 34

occupational immobility geographical immobility lack of perfect knowledge

Question 35

how does a trade union distort wages

Answer 35

they bargain for higher wages through collective bargaining the bigger the trade union the more power they have to distort wages members of trade unions get higher wages because of this which leads to wage differentials

Question 36

what impact does a monopsony have on wages

Answer 36

monopsony- one dominant employer of labour in the profession monopsony has wage setting power they can use this power to lower wages so this profession may have lower wages than others

Question 37

what are the characteristics for a monopsony employer

Answer 37

wage maker maxiise revenue from workers by hiring up to where MRP=MCL

Question 38

draw the diagram for a monopsony employer

Answer 38

Wc,Qc - wage for competitIve firm which is where S=D W1, Q1 - monopsonist. where MRP=MC

Question 39

why is the MC of labour greater than the AC of labour for a monopsony

Answer 39

have to increase wages for all workers when hiring new ones otherwise existing workers will strike

Question 40

where is wage determined on a monopsony diagram

Answer 40

wage is AC of labour so go down from MRP=MC to where it meets the AC curve -> read the wage off here

Question 41

how does the monopsonist equilibrium compare to that of a perfectly competitive labour market

Answer 41

monopsonists reduce employment compared to perfectly competitive labour market wages is a monopsony is reduced compared to perfect comp

Question 42

why do footballers earn more than e.g nurses

Answer 42

MRP of footballers is very high and their skills are unique low supply of footballers so theres inelastic supply of labour and high demand for them monopsonist state employer of nurses also theres a vocational element which compensates for the wage differential

Question 43

why do minority groups have a lower MRP

Answer 43

theyre less qualified on average due to poor education this means they have low employment prospects so they cant bargain for higher wages

Question 44

why does the level of language proficiency ac as a barrier to higher incomes for certain ethnic groups

Answer 44

reduces productivity and employability especially in higher paid occupations

Question 45

what are the 3 reasons for why certain ethnic groups earn more than others

Answer 45

minority groups have a lower MRP language barriers minority groups tend to end up in low paid sectors where its predominantly manual work reluctance to migrate

Question 46

why may certain ethnic groups be reluctant to migrate

Answer 46

stay close to family - cultural idea even though there may be less job prospects where they live they wont move due to family so theyll accept low paying jobs

Question 47

what are the advantages of wage differentials

Answer 47

acts as an incentive to access high paying jobs through training and education trickle down effect incentive to get off welfare benefits because if everyone is paid the same there is no incentive - also beneficial for the govt workers end up where theyre most productive so wages act as a signal

Question 48

what are the disadvantages of wage differentials

Answer 48

income inequality govt has to spend more on welfare payments depression - govt has to spend more on healthcare trickle down effect may not occur as the rich has a high MPS or may engage in tax avoidance solutions may be limited if theres a monopsonist employer

Question 49

how can you evaluate wage differentials

Answer 49

how much inequality is there? costs v benefits? risk of govt failure from govt intervention? e.g Laffer curve SR and LR effects?

Question 50

what is meant by a closed shop trade union

Answer 50

in a given profession al workers belong to one union one union has all of the power and all of the workers trade union is a monopoly supplier of labour controls labour supply at a given wage rate are illegal

Question 51

draw the diagram to show the impact of a trade union in a perfectly competitive labour market

Answer 51

Question 52

explain the trade union kinked supply for labour curve

Answer 52

those who are paid Wc and below would be happy with the trade unions wage rate so they will only be willing to work at that wage rate (Wtu) workers who will only supply their labour above Wtu wont work at this wage rate so supply curve continues as normal -> to attract these workers the firm would have to offer a higher wage this wage will hold as the trade union an organise a strike

Question 53

what effect foes the trade union have on wages and employment

Answer 53

they increase wages compared to competitive outcomes they decrease employment as theres excess supply

Question 54

what is union density

Answer 54

the proportion of a workforce that is in a trade union bigger trade union = more power and therefore bigger union density

Question 55

what is meant by union mark up

Answer 55

the difference in wage between what workers who are part of a trade union in a given profession are getting compared to what workers who arent part of a trade union are getting in a similar profession

Question 56

draw a diagram to show the impact of a trade union in a monopsony labour market

Answer 56

kinked supply curve as workers no longer willing to work below Wm which is the monoposny wage

Question 57

explain the impacts of a trade union in a monopsony labour market

Answer 57

wage < MRP in a monopsony trade unions control the supply of labour at a given wage rate strong trade unions make the monopsonist a wage taker wages increase for everyone closer to competitive outcomes and employment increases aswell

Question 58

what do the impacts of a trade union of a monopsony labour market depend on

Answer 58

effect depends on size of monopony bigger monopsony = bigger impact of trade union

Question 59

why is the MCL curve for a trade union in a monopsony labour market kinked

Answer 59

when monoposnist increases wages it has to do so for all workers