Labour Markets

Question 1

Why is labour a derived demand?

Answer 1

Firms demand labour to fulfil their need to supply and for the revenue that is created.

Question 2

What factor of production is fixed in the SR in labour markets?

Answer 2

Capital is fixed while labour is variable in supply.

Question 3

What is the MRP?

Answer 3

MRP = marginal physical product of labour (MPP) x selling price.

Question 4

What is the MPP?

Answer 4

The increased physical product by employing one extra worker.

Question 5

Where will a firm employ workers up to?

Answer 5

Up to the point where MC = MRP.

Question 6

What are the assumptions in a perfectly competitive market?

Answer 6

1. Large number of small buyers and sellers.
2. No barriers to entry.
3. Perfect information on wages and working conditions.
4. Labour is homogeneous.

Question 7

When does the MRP curve shift?

Answer 7

Any changes in selling price or productivity.

Question 8

What factors determine WED?

Answer 8

Time period (contracts),
ability to sub capital with labour,
share of labour cost in relation to business cost
and elasticity of demand for the final product.

Question 9

What is the substitution effect of labour?

Answer 9

As wage rates increase, the opportunity cost of not working increases, thus the substitutes of leisure for work.

Question 10

What is the income effect of labour?

Answer 10

As wage increases, so does one’s ability to enjoy leisure time; thus, workers may supply less labour at higher wage rates to enjoy more leisure time.

Question 11

What shifts the supply of labour?

Answer 11

Population factors such as age and gender
changing retirement age.
Net migration
Social trends and attitudes
Trade union power
Gov tax and welfare policy
Labour mobility

Question 12

What will the supply of labour to an industry depend on?

Answer 12

Availability of suitable labour in other industries,
level of skill required,
time taken to acquire skills
rate of employment (unemployment).

Question 13

What is a monopsony employer?

Answer 13

A sole or dominant purchaser that has the ability to affect the market price or wage rate.

Example: Government in education.

Question 14

Where will a monopsony employer employ workers up to?

Answer 14

A monopsony employer is a wage maker and will maximize profit from labour by employing up to the point where MC=MRP.

Question 15

What are trade unions?

Answer 15

Organisations of workers that seek through collective bargaining with employers to bargain for higher wages, improve job security, and better working conditions.

Question 16

What is a trade union in terms of labour?

Answer 16

A trade union is a monopoly seller of labour.

Question 17

What is the influence of trade unions in a monopsony market?

Answer 17

The increase in wage rates from trade unions pushed wages and employment levels closer to competitive equilibrium.

Question 18

What is the impact of trade unions in a perfectly competitive labour market?

Answer 18

Increase in wage rates. However, firms will now employ less, therefore increasing unemployment.

Question 19

What are the factors influencing trade union power?

Answer 19

Membership,
likelihood of industrial action,
price elasticity of demand for labour
profitability levels
legal and institutional framework.

Question 20

What do trade unions control?

Answer 20

Supply at a given wage rate.

Question 21

What does the influence of trade unions depend on(eval)?

Answer 21

The type of market.
Strength of TU power
Success determined by size of wage increase

Question 22

Why do trade unions have limited power in the real world

Answer 22

Strict legislation-closed shop illegal, reduce strike power
Union membership decreasing
Restructuring of UK economy-less manufacturing, part time work
Competitive pressures-firms have more power

Question 23

What are wage differentials

Answer 23

Difference in wages paid for certain reasons

Question 24

What are the causes for wage differentials

Answer 24

Labour is not homogenous
Discrimination
Labour is not perfectly mobile
Imperfect information
Trade unions
Monopsony employers

Question 25

What is the effect of elasticity on NLW in perfectly competitive markets

Answer 25

Inelastic demand leads to a small reduction in employment. • Elastic demand leads to a much larger fall in labour demanded, increasing the risk of unemployment ( due to the increased ability for capital to replace a worker)

Question 26

What are the arguments for the NLW

Answer 26

Reduces inequality In work poverty reduction Boots productivity Incentives to work Anti-discrimination Helps gov finances

Question 27

What are the arguments against the NLW

Answer 27

Increases unemployment Small business struggle Reduced global competitiveness Cost push inflation- increase in business costs

Question 28

What is wage discrimination

Answer 28

Different wage for same job due to irrelevant factors More likely to occur when asymmetric information exists

Question 29

What are the consequences of wage discrimination

Answer 29

Inequality of income and poverty Lower motivation and productivity Lower tax revenue for gov Social unrest

Question 30

What are the gov policies to tackle labour immobility

Answer 30

Train potential employees Fast+efficient transport network Efficient communication Regional policy-grants Increases spending on education and infrastructure

Question 31

What are some government policies to tackle disincentives to work

Answer 31

Cutting income tax Cut benefits Increase min wage UBI

Question 32

What are some government policies to tackle discrimination

Answer 32

Tougher laws on equality Laws on unfair dismissal Min wage Encourage trade unions

Question 33

What are some government policies to tackle monopsony employers

Answer 33

Encourage business start ups Encourage trade union membership

Question 34

What is the combined effect of the substitution and income effect of labour

Answer 34

At lower wage levels, the substitution effect tends to dominate — people work more as wages rise. • At higher wage levels, the income effect might dominate — people may work less because they can afford more leisure.