Labour Markets

Question 1

What are the 4 factors affecting demand for labour

Answer 1

• Productivity
• Derived demand
• Price of complements
• Price of substitutes for labour

Question 2

Explain how derived demand affects demand for labour

Answer 2

If demand for a product increases then demand for capital (labour) to help produce said product will increase such that the “derived” demand can be met

Question 3

Explain how price of complements of labour affect demand

Answer 3

If the price of these complements increases, demand for labour will reduce as firms will be less willing and able to buy at a given price

Question 4

What is meant by complements of labour

Answer 4

Anything that supplements labour such as national insurance, pension payments and non-pecuniary benefits

Question 5

Explain how price of substitutes affects labour

Answer 5

If the price of substitutes goes up then the demand for labour will increase as firms are more willing and able to buy labour at a given price

Question 6

What is meant by substitutes for labour

Answer 6

Machinery, like the cash machine at supermarkets and that

Question 7

What is marginal revenue product MRP

Answer 7

The change in a firms revenue as a result from employing an extra unit of labour

Question 8

What is marginal product labour MPL

Answer 8

The change in in a firms output as a result from employing one more employee

Question 9

How can productivity increase

Answer 9

• Staff training

- Supplementing technology

Question 10

Explain the backwards bending supply curve giving the 2 main segments

Answer 10

The substitution effect happens as it bends up (supply is increasing) because the higher wage makes work more attractive than leisure.
The income Effect happens as it bends back(supply is decreasing with higher wage) because workers achieve a target income by working less hours.

Question 11

state the 8 factors affecting supply of labour

Answer 11

• Flexibility of location
• Quantity/Quality of training
• Respectability
• Pleasantness of job
• Holiday days
• Job security
• Convenience of hours
• Chance of promotion

Question 12

State the 7 causes of labour market failure

Answer 12

• Trade unions
• Mono/Oligopsony
• Skill shortages
• Discrimination
• Immobility of labour
• Economic inactivity
• Minimum wage

Question 13

Collective bargaining:

Answer 13

The process of negotiation between employees and a group of employers aimed at agreements to regulate working salaries. The interests of the employees are commonly presented by representatives of a trade union to which the employees belong.

Question 14

Explain why the minimum wage might not cause labour market failure:

Answer 14

More money for workers -> More disposable income -> Increased spending (more C) -> Increased aggregate demand thus more derived demand for labour, increasing the price of labour close to the minimum wage

Question 15

What are Trade Unions:

Answer 15

An organisation that represents a collection of labourers to bargain for better pay and conditions.

Question 16

How can trade unions negotiate:

5

Answer 16

• Can arrange meetings with higher ranks in the management structure
• Strike!
• Work-to-rule ( do only what is contracted to do), Refusing overtime
• Sit-in ( workers do not leave the building )
• Publicise, such that public puts pressure on business

Question 17

How do trade unions cause market failure: (2)

Answer 17

• Artificially restricting the labour supply via implementing more regulation to enter the industry, increase fees for joining and/or lowering the amount of qualifications given away, resulting in a shift to the left (contraction) of supply, raising the wages.
• Demanding higher wages ( works the same as minimum wage ) results in unemployment and quasi-unemployment.

Question 18

What is a monopsony:

Answer 18

Occurs when a firm has market power in employing factors of production. A monopsony means there is one buyer and many sellers.

Question 19

How are wages determined in monopsonies:

Answer 19

Firms face the entire supply curve and as a result they must pay all their workers the same amount of the previous worker ( as opposed to an incremental amount ). Overall, the result is that MCL=D is the amount employed but for the S=D wage ( because their power ).

Question 20

How do monopsonies cause market failure:

Answer 20

They employ less than the labour market equilibrium as a result of them employing where MCL = D

Question 21

Which two types of labour market failure juxtaposition minimizes market failure and how this works:

Answer 21

Monopsony and minimum wage, where the trade union demands to be paid the market wage. One should not that the market quantity is not met from the negotiations, thus not all the labour market failure is solved.

Question 22

Why is training of labour under consumed:

Answer 22

Training has positive externalities where societies benefits are higher than the social benefits.

Question 23

Why is labour under consumed as a result of training being under consumed:

Answer 23

Labour is less productive than it should be therefore the demand is lower than it should be which leads to a lower amount of labour consumed than should be.

Question 24

What is Becker’s theory:

Answer 24

Where firms are willing to experience higher costs to not come into contact with a certain group of people

Question 25

What is Statistical theory:

Answer 25

Firms seek to lower costs doing so on generalisations that may be incorrect.

Question 26

How does statistical theory cause labour market failure:

Answer 26

The demand for the discriminated group without proper information is lower than it should be, therefore this group is under consumed.

Question 27

What is Geographical immobility:

Answer 27

Where there are obstacles to moving to a job in a different area, such as house prices, quality of transport, etc.

Question 28

What is Occupational immobility:

Answer 28

Where there are difficulties moving to a job of different profession, such as qualification recognition.

Question 29

How does immobility of labour cause labour market failure:

Answer 29

People’s ability to work, means supply at a given level is reduced thus these people are under consumed.

Question 30

What is imperfect information and how does it work:

Answer 30

Workers may be in jobs that are less well paid and aren’t fully suited to them, or one could be unemployed because one doesn’t know of the suitable job vacancies available. Likewise, an employer may not have the most productive workforce simply because they are not in touch with all of the potential workers.

Question 31

Why might not workers/employers look for better employers/employees:

Answer 31

The costs of going out of their way and doing mentioned search might not justify the extra private benefit they receive.

Question 32

How does economic inactivity cause labour market failure:

Answer 32

Discouraged workers represent a waste of resources and a burden on taxpayers.

Question 33

What are three solutions to market failure resulting from discrimination:

Answer 33

Anti-discrimination laws. E.g. equal pay act which states that people doing the same work should be paid the same Quotas in some countries for minorities Provide information about average productivity of minorities.

Question 34

How could one evaluate on quotas to stop discrimination:

Answer 34

Might make overall productivity and market failure worse as they’re only hired to meet said quota

Question 35

How could one evaluate on providing information about productivity of minorities to stop discrimination :

Answer 35

Might make Becker’s theory more prominent as it fits into people's confirmation bias

Question 36

What are some solutions to market failure as a result from trade unions: (4)

Answer 36

- Ban them - Force reduction in the amount of qualifications needed - Legislation to limit the power of the trade unions - Provide fringe benefits instead of higher wages

Question 37

How could one evaluate on the reduction in qualifications needed to solve trade union failure:

Answer 37

Could make workers less skilled and less productive

Question 38

What are some solutions to lack of information causing labour market failure: (3)

Answer 38

- Job centres - Internet (Indeed, reed, linkedin) - Careers advice

Question 39

How could one evaluate on the solutions to lacking information:

Answer 39

Developing countries already have these solutions in place, it is developing countries that require these solutions and they have little resources to impose them.

Question 40

What are some solutions to immobility of labour: (5)

Answer 40

- Encourage firms to relocate (subsidies, incentives) - Improving transport infrastructure - Unify qualification system - Increasing housing -> increase supply, drives prices down - Fringe benefits such as company cars

Question 41

How could one evaluate on the solutions to immobility of labour: (3)

Answer 41

- Expensive to provide infrastructure etc - Negative externalities associated with building - Opportunity cost of subsidies and government funded projects

Question 42

Explain why someone with negative economic rent might not quit:

Answer 42

Non-pecuniary benefits

Question 43

What are transfer earnings:

Answer 43

Minimum payment required to keep that factor of production (labour really) in current use

Question 44

What is economic rent:

Answer 44

The amount above what you’re willing to be paid or needed to keep that FoP in use.

Question 45

What are the two types of inequality:

Answer 45

- Wealth | - Income

Question 46

How is inequality measured:

Answer 46

Lorenz curve and the gini coefficient

Question 47

What are some causes of inequality: (6)

Answer 47

- Tax system -> causes income inequality - Skill differentials - Immobility - Discrimination(rife) - Welfare system(bad) - Minimum wage(none)

Question 48

What are some solutions to inequality: (7)

Answer 48

- More progressive tax system -> richer have to pay more as a % of their income - Higher budget for welfare - Investment into education/training - Government provided jobs - Government incentives for firms to relocate - Provision on health care - Corporation tax

Question 49

What are some evaluations to solutions to inequality: (4)

Answer 49

- Laffe curve for more progressive tax system - Tax evasion + avoidance from richer folk - High opportunity cost for government funded shit - Minimum wage could cause inflation making people worse off