Micro - Labour Markets Flashcards
(107 cards)
1
Q
What is a labour market
A
It is a market in which labour skills can be exchanged between employers and workers for a wage rate
2
Q
What are labour markets an example of
A
A factor market
3
Q
What is a factor market
A
It is a market where factor inputs are bought and sold
4
Q
In a factor market who are the buyers and sellers
A
Buyer/demand - Firms
Seller/supply - Individuals
5
Q
What type of demand is the demand for labour
A
derived demand
6
Q
What is the marginal cost of a worker
A
It is the additional cost of hiring one more worker
This includes his wage and non-wage costs and any effect on the wage rate paid to the workers
7
Q
What is the marginal benefit of a worker
A
It is the extra revenue brought in by hiring an extra worker and selling his output
8
Q
What position will an employer keep employing workers
A
Marginal benefit > marginal cost
MRP > MC
Keep employing till MRP = MC
9
Q
How do you measure the marginal revenue of a worker
A
Measure the marginal physical product (MPP) - extra output made by the worker
Find the market value of the extra output once sold (the Price of output per good)
MPP x P = MRP
10
Q
What do MPP and MRP measure
A
Productivity
MRP in monetary value
MPP in physical value
Both curves are an increase and then a sloping fall
11
Q
What is another name for marginal benefit
A
MRP
12
Q
What does the MRP curve represent in a labour market
A
The demand curve for labour
13
Q
What is the definition of demand for labour
A
It is defined as the quantity of labour that a firm is willing and able to hire at any given wage rate
14
Q
What causes the demand for labour curve to shift
A
Productivity
Price of the product
Derived demand for the product
Profitability of the employer
Price of substitutes for labour - capital
Price of complements to labour - capital
15
Q
What causes movements along the demand for labour curve
A
Change in wage rate
16
Q
What is wage elasticity of demand for labour
WEDL
A
It is the responsiveness of the quantity demanded of labour following a change in the wage rate
17
Q
Whats the formula for WEDL
A
% change in Qd of labour/% change in wage rate
18
Q
What sign means normal for WEDL
A
Negative
19
Q
What determines the wage elasticity of demand for labour
A
Price elasticity of demand for the product
Proportion of total costs made up by wages
Number and availability of substitutes
Time
Labour market flexibility
20
Q
What are the weaknesses in MRP Theory
A
- It assumes employers are profit maximisers
- It assumes that workers are identical and have the same skill
- It is hard to calculate MRP accurately
- It assumes that MRP and wage rate are independent and wage rate doesn’t affect a workers MRP
21
Q
Why can MRP be hard to calculate
A
Hard to figure out the revenue contributions if working in a team
Hard to figure out revenue contributions if working with capital
When the output is not a physical good
When the output is not sold at a market price
22
Q
What is the labour force
A
It is the total number of people who are in work or are unemployed but actively seeking work. These workers are described as economically active
23
Q
What is the participation rate
A
The percentage of the working age population that is economically active -in work or looking for work
24
Q
What is the participation rate equation
A
total number of employed and unemployed/population of working age x100
25
What are the main reasons for economic inactivity
Full time study
Early retirement
Full time Family care
Long term sickness
Discouraged workers
26
What are the trends in the UK labour market
Rising rates of self unemployment
Rising rates of part time employment
Increase in NEETS
Missing Million
27
Why are there rising rates of self employment
Redundant workers who can't find employment quickly
Increased levels of net immigration
Greater incentives for risk due to falling corporation tax
28
What are NEETs
Young people Not in Education, Employment or Training
29
What caused the missing million
Brexit meant EU workers left
Rise in economic inactivity in the post pandemic world
Rising numbers of ill health from covid
Rising number going to university
30
What is the supply of labour
It is the quantity of labour time that workers are willing and able to supply at any given wage rate
31
What can an increase of wage rate be seen as
Increase reward for work
Increased opportunity cost of leisure
32
What factor cause movements in the supply curve
wage rate changes
33
What factors cause shifts in the supply curve
Change in labour force size
Immigration
Participation rate changes
Wage rate of alternative jobs
Working conditions
JSA
Retirement age
34
What factors affect the national labour market
Change in participation rate
Changes in net migration
Institutional changes - e.g retirement age
35
What is migration
It is the movement of labour either within the domestic regional economy or across national borders
36
What factors affect individual labour markets
Changes in the relative attractiveness of labour markets
Changes in the non-pecuniary reward for work
37
What are pecuniary benefits / costs
This refers to the direct monetary reward/financial cost with a job
38
What are the non-pecuniary benefits/costs
These refer to to any non-monetary benefits/costs of a job
39
What is wage elasticity of supply of labour
It is the responsiveness of the quantity of labour supplied to a particular market following a change in the wage rate offered
40
What is the equation for wage elasticity of supply of labour
% Change in quantity of labour/% change in wage rate
41
What does the sign for wage elasticity of supply of labour mean
+ = normal
- = target income/backward bending SL
42
What type of labour has a elastic elasticity
Unskilled
Short Training
In the Long Run
Open Borders
43
What are the causes of differing elasticity of supply of labour
The skill of the job/training length
Degree of full employment
Time
Occupational/Geographical immobility of labour
Immigration caps
44
What are earnings
The total income earned from work in the form of wages, bonuses and commission
45
What is a free labour market
It is one in which there is no government intervention in the process if buying or selling labour or wage setting
46
What are wage differentials
They are any differences in the pecuniary reward paid to workers on the basis of their occupation, gender, age, ethnicity or region
47
What are the reasons for different wages
Different demand and supply's
Different elasticity's of demand and supply
48
What can the reasons for a high wage be
High demand
Low supply
Inelastic supply and demand
49
What are the reasons for low wages
Low Demand
High Supply
Elastic supply and demand
50
What are the functions of wage rates in the labour market
Allocative function
Rationing function
Signalling function
Compensation function
Reward function
51
What is the allocative function
Wages levels adjust to bring demand and supply for labour together that prevents shortages or surpluses
52
What is the rationing function
The function allows employers to adjust how much supply for labour they have
53
What is the signalling function
Wage rates signal to workers where to go for the highest reward
54
What is the compensation function
Wages offset the non-pecuniary costs in a job
55
What is the reward function
Wages incentive's workers to invest in their own human capital
56
What are the conditions of a perfectly competitive labour market
Large number of small, weak employers - wage takers
Large number of small, weak workers - wage takers
Homogeneous labour - identical
Perfect mobility of labour both geographically and occupationally
Perfect information
Employers are profit maximisers
57
What is the point of profit maximising
MRP = MC
58
What does the Supply of labour look like in perfect competition
Perfectly elastic
equal to AC and MC
59
What is a monopsonist
It is a sole buyer of a good or service. In terms of the labour market this would mean a dominant employer of a particular type of worker
60
What are the conditions of a monopsony model
A dominant employer of labour
All labour is homogeneous
Firms are profit maximisers
Workers negotiate individually for wages
All workers doing the same job are paid the same wage
61
What is the supply and demand curve like in a monopsony
Supply is equal to AC and normal
Demand = MRP and normal
MC is separate from SL
62
What is a trade union
It is an organisation of workers in related occupationsthat attempts to improve pecuniary and non-pecuniary rewards to its members through collective bargaining
62
What are the conditions of a trade union in a labour market
Large number of relatively small and weak employers
Employers are profit maximisers
Workers are in a union and they are powerful enough to decide the wage rate
The market without the union is in competitive equilibrium
62
How does a trade union affect the supply curve
The trade union sets a minimum wage rate so the supply is flat at that wage rate and the connects with the rest of the supply curve
62
What does the strength of a trade union depend on
Union density - % of workers in a industry who are in a union
Number of unions
62
What does the trade-off between wages and employment depend on
The size of the mark up
The wage elasticity of demand for labour
63
What is a mark up
It is the difference between the forced wage rate and the competitive wage rate if there wasn't a union
64
What is a bi-lateral monopoly
It is a market where there is a strong monopsonistic buyer and strong monopoly supplier of labour
65
What are the 3 outcomes of a bi-lateral monopoly
Union pushes wages up below equilibrium
Union pushes wages up to equilibrium
Union pushes wage up above equilibrium
66
What does the demand and supply curve look like in a bi-lateral monopoly
The demand curve is unchanged
The Supply (AC) curve is flat at minimum wage and then joins up with rest of curve
The MC curve is flat at minimum wage and then jumps up to join rest of MC curve
67
What is the result of wage rate below equilibrium
Wage rate and employment have both been raised
68
What is the result of wage rate at equilibrium
Wage rate and employment both raised
Market back to perfectly competitive equilibrium
69
What is the result of wage rate above equilibrium
Wage rate increased
Employment stays the same or falls
Labour surplus
70
How is it decided how many are hired at different price levels
If the wage rate is above equilibrium the employer decides how many are hired
If the wage rate is below equilibrium the workforce decides how many workers are hired
71
What is a flexible labour market
It is one in which wages and employment levels adjust quickly overtime in response to changes in the demand and supply of labour to ensure the scarce labour is allocated efficiently
72
Why is flexible labour markets important
Keep the market allocatively efficient
73
What directions are wages normally wage inflexible
They are normally flexible upwards but sticky downwards
74
What are causes of wage inflexibility
Minimum wage rates
Maximum wage rates
National wage settlement
75
What are policies that promote wage flexibility
Performance related pay
Remove minimum and maximum wage rates
Reduce powers of trade unions
Move away from national settlements
76
What are causes of employment inflexibility
Difficulties in getting hold of extra staff when demand rises
Difficulties releasing unwanted labour when demand falls
77
What are policies to promote employment flexibility
Employers have main workers and then hire more if they need to
Operate an overtime system
Multi-skilling training so they can move from job to job
Reducing employment rights for workers
Improve information flows
Improved training for unemployed people
78
What are the advantages of flexible labour markets
1. Allows firms to expand workers rapidly which benefits the firm and the economy
2. Allows firms to release unwanted labour rapidly benefiting the competittivness of the firms because of small costs
3. Makes the UK economy more attractive for inward investment
4. Minimises unemployment reducing transfer payments
5. Workers may benefit from flexible working arrangements
79
What are the disadvantages of flexible labour markets
1. Lack of trraining on short term contracts
2. Might lead to higher job insecurity
3. Reduction in trade union membership means workers have less rights and are poorer
4. Less pensions means more pension poverty meaning the government will need to help more
5. More unpredictable work times can have negative effects on families and social lives
80
How has the UK changed with flexible markets
UK labour markets have become more flexible with shorter contracts
Expansion of the gig economy
81
What is causing the demand for flexible labour markets
Changing business environment
A changing social environment
Government policy environment
Technological innovation
82
What is economic discrimination
When an employer chooses who to pick based of their perceived marginal revenue productivity
83
What is non-economic discrimination
When an employer places value on a workers characteristics that are unrelated to productivity
84
What does non-economic discrimination cause and how
Labour market failure
Allocative inefficiency
Productive inefficiency
Unfair
85
Why does discrimination happen
1. The taste model - employers have a distaste for certain groups
2. Employer ignorance or prejudice - Employers assume the productivity based on characteristics and information failure
86
What policies have been made to fight discrimination
Equality Act 2010
Equal pay act 1970
Disability discrimination 1995
87
What affects do the discrimination policies have
They try to make pay more equal by raising the amount paid to women or certain races
This boost though causes a reduction in the amount of women hired and the surplus of women are pushed into women dominated areas
This causes the wages to fall in this market because of the increase in supply
88
Where does the gender pay gap exists
Across all ages - worse in middle age
Across all jobs
Across both private and public sector
All regions of the UK - apart from Northern Ireland
89
What are the reasons for the gender pay gap
Productivity and human capital
Over representation in low paid and part time work
Under representation in high paid work
Less Unionised
Monopsony power
Lack of affordable childcare
Discrimination
90
What is national minimum wage
It is a wage floor below which no adult can legally be paid. It operates across all industries and was introduced in 1999 by Labour
91
How does national minimum wage affect the market
Causes a rise in market wage
Change in the level of employment depending where the wage floor is set
92
What affect does NMW have on inflation
1. NMW causes a rise in unit labour costs but these would only be transferred to higher prices in national markets
2. The escalator effect - If low wage workers get a pay rise from the NMW then workers earning more will ask for a pay rise to mainatin the difference between wages
93
What is income
It is the flow of money going to factors of production
94
What is wealth
It is the stock of money in different ways
95
What is a Lorenz curve
It is a curve that plots the cumulative percentage of population against the cumulative percentage of income earned by the population
96
What are the different ways to measure inequality of income and wealth
The share of income going to different groups in society
Proportion of households who live under the poverty line
97
What is the official poverty line in the UK
annual income of less than 60% of median income
98
What is the Gini coefficient
It is a commonly used measure of income inequality
Goes from 0 to 1
The higher the number, the greater the degree of income inequality
99
How is the gini coefficient measured
It is the Area between the line of perfect equality and the Lorenz curve over the total area under the perfect equality line
100
What is the intended target of national minimum wage
60% of median wage of the country
101
What the correlation between living standards and life expectancy
No correlation
102
Whats the correlation between inequality and health and social problems
There is a positive correlation
103
Why does relative income affect social outcomes and not absolute income
Pyschosocial factors such as status anxiety and status competition
Leads to higher stress
