The Labour Market Flashcards
(82 cards)
1
Q
what is the labour market composed of ?
A
sellers of labour (Households)
buyers of labour (firms)
2
Q
who supplys the labour ?
A
workers
3
Q
who demands the labour ?
A
firms
4
Q
what type of demand is the demand for labour ?
A
derived demand
5
Q
what is derived demand ?
A
demand that is dependent on the demand for goods and services
6
Q
what does demand for labour depend upon ?
A
The Marginal Physical Product of Labour (MPPL)
The Marginal Revenue Product of Labour (MRPL)
7
Q
what is marginal physical product of labour (MPPL) ?
A
is the extra output produced when an additional unit of labour is employed
8
Q
what is marginal revenue product of labour (MRPL) ?
A
is the extra revenue earned when an additional unit of labour is employed
9
Q
What does the demand curve for labour show us ?
A
How many workers will be hired at any given wage rate over a given period of time.
10
Q
what are the factors that shift the demand for labour curve ?
A
change in the price of the final product the labour is producing (increases/decreases MRPL)
Demand for final product
substatuitablity of labour for capital
Change in price of capital
productivity of labour
11
Q
what is the elasticity of demand or labour ?
A
how responsive a firms demand for labour is to a change in price of labour.
12
Q
what are the factors that influence that PED for labour ?
A
proportion of labour costs to total costs
Substitutability of capital for labour
PED for final product
time period (in the long run FOP are variable, easier for firms to bring in capital)
13
Q
monetary factors that influence the supply of labour ?
A
wages
salary
commission
bonus
piece rate pay
performance related pay
share options
fringe benefits
14
Q
non-monetary factors that influence the supply of labour ?
A
length of training
job security
job satisfaction
level of challenge
15
Q
what factors shift the supply curve for labour ?
A
training period
wages in other substitute occupations
income tax levels
working conditions
Value/amount of leisure time
16
Q
in a perfectly competitive labour market, how are wage rates determined ?
A
DL = SL
17
Q
what is the assumption of workers in perfect competition ?
A
workers possess identical skills
receive same wage rate
18
Q
if there is excess demand of labour, what does that mean for labour rates ?
A
shortage of workers, causing wages to increase
19
Q
of there is an excess supply of labour ?
A
causes wages to decrease
20
Q
are perfectly competitive firms price takers of makers ?
A
price takers
21
Q
if a perfectly competitive firm is a price taker, what does this mean in terms of labour ?
A
they have to accept the wage rate that workers are being paid in the industry (have to accept the industry wage rate)
22
Q
what are the 3 main causes of imperfections in the labour market ?
A
monopsony power
trade unions
imperfect information
23
Q
what is a monopsony ?
A
a single employer of labour in a market, giving the employer considerable labour market power to set wages and employment
24
Q
the higher the percentage of workers from a firm that belong to a trade union, the greater the … ?
A
collective bargaining power
25
what are the other factors that influence trade union power ?
employee participation
state of the economy
unemployment level
productivity of labour
wage levels as a proportion of total costs
ability to swap labour for capital
size of trade union
firms profits
26
why do governments intervene in the labour market by setting a minimum wage ?
to improve equity
avoid exploitation of workers
27
what are the advantages of minimum wages ?
guarantees a minimum wage for the lowest paid workers
higher income levels help to increase consumption in the economy
may incentivise workers to be more efficient
28
what are the disadvantages of a national minimum wage ?
raises costs of production for firms which may result in firms raising the price of their goods/services
increase unemployment potentially, as they may lay off workers to lower production costs
29
where does wage discrimination occur ?
when there is imperfect information leading to a difference in wages between workers with comparable skills in the same job
30
what are the 2 most common wage discrimination scenarios ?
gender pay gap discrimination
ethnicity discrimination
31
if there is less competition in the labour market what does that mean in terms of power over wage setting ?
more power over wage setting
32
when do monopsonys occur ?
when there is a single employer of labour in a market.
Asymmetry of bargaining power between employer and employees.
A monopsonist can pay less than the competitive wage because workers have few alternative employers of labour.
33
what does ACL (average cost of labour) tell us ?
the wage emplyees are being paid
34
what does MCL (marginal cost of labour) tell us ?
the change in wage of the extra/new employee hired
35
at what point do monopsonys hire at ?, and why ?
profit maximising point, minimise their costs
36
in a perfectly competitive market what do trade unions do ?
set a trade union wage rate above the market rate and the market equillibrium
37
what are trade unions aiming to do in monopsony markets ?
improve wages and working conditions
38
where is the wage rate in monopsony markets before trade nion intervention ?
at the PM point below the Market Equilibrium
39
what does trade union intervention attempt to accomplish in monopsony markets ?
to set a wage rate at the market equilibrium, to raise wages and employment
40
why do governments often intervene in markets to set a minimum wage ?
to improve equity and avoid exploitation of workers
41
where is the minimum wage usually set in perfectly competitive markets ?
above the market equilibrium
42
what are the advantages of national minimum wages ?
+ guarantees a minimum income for the lowest paid workers
+ increased income levels for workers may increase consumption
+ may incentivise workers to be more productive
43
what are the disadvantages of national minimum wages ?
- raises costs of production, may lead to firms setting higher prices for their goods/services
- may force businesses to lay off workers to cut costs
44
why does minimum wages not always lead to unemployment ?
higher incomes for workers will lead to greater consumption and demand for goods/services
45
where does wage discrimination occur ?
when there is a difference between workers with comparable skills in the same job
46
what are the 3 factors of wage discrimination ?
- discriminatory attitudes towards particular groups
(Gender & Ethnic Minorities)
- information asymmetry
(justifying lower wages due to a lack of financial transparency)
- regulation
(lack of legislation or regulation may result in firms exploiting their power with no fear of consequence)
47
what is the Price Mechanism ?
the interaction of demand and supply in a market economy that allocates resources amongst competing needs and wants
48
what does Adam Smith refer to the Price Mechanism as ?
"The invisible Hand "
49
what are the 3 functions of the Price Mechanism ?
Rationing
Incentivising
Signalling
50
what happens if a function of the market mechanism breaks down ?
Market Failure
51
what is the Rationing function of the market mechanism ?
. when resources become scarce, the price will rise
only those who can afford them will receive them
This will disincetivise consumers to spend
52
what is the Incentive function of the market mechanism ?
. the incentive function encourages producer to increase or decrease output to increase profits.
Falling prices may incentivise firms reallocate resources to a new market
53
what is the Signalling function of the market mechanism ?
. a change in price provides a signal to consumers and producers about where resources are wanted.
increased prices -> signal producers to produce more of that product
decreased prices -> signal producers to produce less of that product
54
if there was an increase in the demand for honey (D1 -> D2), what would be the functions of the Price Mechanism ?
Rationing: a rise in price will lead to only consumer who can afford that product purchasing it
Incentivise: a higher price incentivises firms in that market to allocate more resources to that product to produce more
Signal: a rise in price and demand for that product in that market will signal other firms to enter the market
55
what are the advantages of the Price Mechanism ?
+ reduces are allocated more efficiently as the market adapts to changes quickly
+ consumers have more freedom of goods and services produced (wants and needs are better met)
56
what are the disadvantages of the Price Mechanism ?
- does not account for monopoly power, can lead to exploitation of consumers by firms
- can lead to an under-provision of public goods (lack of profit to be made of them, because they are non-excludable) this could cause market failure
57
Two ways in which monopsony power of employers might be challenged ?
Raising minimum wage (legally enforced wage floor)
Strengthening trade unions
(Greater collective bargaining power, to negotiate more equitable wages, and better working conditions)
58
What determines firms demand for labour ?
MRP (marginal revenue product)
59
What is the formula for MRP ?
MRP = MPP X MR
60
D = ?
MRP
61
Firms will hire workers up until MRP = MCL (wage rate). Why ?
Because if they were to hire an additional worker the cost of hiring that worker would be greater than the MRP (benefit) they bring in.
62
At what point will firms hire workers up too ?
MRP = MCL (wage rate)
63
What are some criticisms of the demand curve for labour (MRP) ?
- difficult to measure productivity
- teamwork makes it difficult to measure individual productivity
- assume labour markets are always perfectly competitive (imperfectly competitive markets, trade unions etc)
64
What does the individual labour supply curve show ?
Key choice between work and leisure.
(Substitution effect: as wages rise, the opportunity cost of leisure time increases)
(Income effect: potential of reaching target income)
Backward bending supply curve.
65
What does the labour supply curve show ?
Shows that as wages increases, the quantity of workers supplied will increase.
Constant increase. (Backward bending supply curve challenges this: substitution effect and income effect).
66
For a firm in a perfectly competitive market, what does the supply curve for labour look like ?
Completely straight horizontal line at wage rate.
67
For a firm in a monopsony market, what does the supply curve for labour look like ?
Normal diagonal supply curve.
However, unlike like monopolies the diagram shows their MCL and ACL, instead of MR and AR.
(MCL being twice as steep, just like MR)
68
What factors influence the PES for labour ?
The nature of skills required for the job.
Length of training period
Vocation (e.g. teachers, not in the job for monetary benefit)
69
What are the characteristics of a perfectly competitive labour market ?
. Many potential workers and employers
. Labour is homogenous (no difference in skills or qualifications)
Therefore … Labour is perfectly mobile
. There is perfect information
. Firms are wage takers
. No barriers to entry or exit
70
What do wage differentials tell us about real world labour markets ?
That there are Labour market imperfections.
- Labour is not homogenous
- Labour is not perfectly mobile
(geographical, occupational immobility)
- trade unions and NMW
- monopsonies and wage setting ability
- consideration of non-monetary factors (breaks, vocation, holidays etc)
71
What is a compensating wage differential ?
Where wages are much higher than the market equilibrium, as a result of a lack of labour supply.
(As a result of poor working conditions, etc)
72
At what point do monopsony’s employ workers ?
MCL = MRP (down to the point where it intersects ACL)
(Maximise revenue)
Wages are lower than competitive markets, and much less employment
73
What do TU control in markets ?
The supply for labour
74
What are the effects of TU intervention in perfectly competitive market ?
Wages are pushed above the ME
However quantity demanded for workers is much less than competitive level of output.
As a result, this creates structural unemployment, due to the excess supply of labour created, as workers are incentivised into the market by higher wages.
75
What are some RW evidence that proves limited power of TU ?
- legislation (limits union density, striking can only happen if 75% of members agree to strike)
- restructuring of uk economy (moved away from manufacturing to more service sector industries) (greater density of smaller firms)
- competitive pressures (firms have higher power to reject demand of TU)
76
Where do TU increase wage rate too in Monopsony markets ?
In between Wage for profit max abd wage for competitive market.
Monopsonist becomes wage taker.
77
What is the value of TU intervention in monopsony markets ?
Increases wages closer to a more socially optimal level.
And increases quantity demanded for workers (increases employment)
78
Why are males paid more than females (wage differentials) ?
. Women move in and out of the labour force more often (maternity leave etc), leading to greater experience, more developed skills, and greater MRP for males
. The age of being economically inactive at a crucial age (late 20s early 30s)
. Differences in education/qualifications (inequalities in developing countries)
. Women work in low paid occupations:
1) part-time occupations
2) service-sector work
3) public sector service work
4) vocational work
. Increase in the supply of female workers
. Discrimination (imperfect information)
79
Why do footballers earn much higher than most professionals ?
. The MRP of footballers is very high (the bonuses made of winning trophies, sponsorship, television broadcasting that they bring into the club)
. Low supply of footballers, (inelastic supply, to become a really good footballer the sacrifices are incredible and there are no guarantees)
80
Why are there regional differences in wages in the uk ? (North-south divide)
- restructuring of the UK economy (movement away from manufacturing to financial services) most of these jobs are in London, demand MRP in London is much higher than up north
- occupational and geographical immobility in the north (creative destruction) (poor transportation)
81
Why are there wage differentials between ethnic groups ?
- minority groups on average may be less qualified (lower MRP)
- lack of language proficiency reduces productivity and employability
- living in poorer areas of country
- Discrimination
82
Where is minimum wage set in monopsony markets ?
At the competitive level of output, (Allocative Efficiency)
