The Labour Market Flashcards
(31 cards)
what is demand for labour derived from
demand for services
what is MRP and its formula
MRP - the revenue generated from adding one extra worker
MRP = MPP x MRc
3 criticisms of MRP as a measure of value
- productivity is very hard to measure (teamwork, creativity, people skills)
- self employed people will have a more vairiable MRP
- assumes perfect comp, in reality monopoly power effects MR
factors that shifts MRP curve
- final price
- demand for final product
- productctivity
- change in capital
( any factor that affects the equation MRP = MPP x MR )
3 factors that affect the elasticity of MRP curve
S,E,C,T
- substitutability of labour
- Elasticity of final product
- Cost of labour as a % of total costs
- Time period
what are the determinants of individual labour supply
- income effect
- substitution effect
what is the income effect
As wages rise incentive to world increases however as people reach there target income the incentive to work will decrease.
this means the income effect can be positive and negative depending on size of income
substitution effect
As wages rise the opportunity cost of not working increases therefore people are incentivized to work (this is always positive
how is the individual labour supply affected by the substitution and income effects
as hours worked becomes greater income and income effect slowly become negative as people reach there target income and will substitute work for leisure.
substitution effect will increase with income however is dwarfed t by income effect at high income creating a backward bending supply curve
how will individual supply of labour vary form person to person
depending on the strenth of substitution effects and income effects for that individual will determine the shape of their supply
why is MC 2x steeper than AC in a monopsony
because if a firm wants to increase wage rate it would have of do so for every worker in the firm therefore marginal cost of labour increase steeply.
3 factors that cause shifts in labour supply
- education and training
- regulation (insentives)
- make up of population ( age/ income/ wealth/size)
3 factors that effect the elasticity of labour supply
- barriers (mobility and skill)
- regulation
- substitution and income effects
- occupational/geographical imobility
4 characteristics of perfectly competitive labour market
- no barriers to entry
- firms are wage takers (because workers are homogonous you cannot attract better workers by raising the wage rate)
- large number of potential workers
- perfect information
Give 3 reasons for labour market imperfections
- labour is not perfectly mobile (occupational immobility and geographical immobility and lack of perfect knowledge)
- wage differentials (monopsony/trade unions/discrimination)
- regulation, distortion of insentives
What is a monopsony
Labour markets where there is one employer
characteristics of monopsony labour markets
- maximize revenue (MC=MRP)
- exploitative (W<MRP)
- presence of regulatory body or tu
how do you measure monopsony power and TU power
difference in wage with MRP
3 factors affecting union power
- size of union
- globalization
- legislation reducing there power
2 examples of legislation against TU in the uk
- Employment act 1980 - secret postal ballots making it harder to organize strikes
- Trade union act 2016 - strike ballots must have minimum turnout of 50 % and overall majority vote
2 effects of TU in monopsony markets
- efficiency increases (only when information is good)
- potential conflicts putting workers at risk
Factors that determine wage differentials
- MRP
- Inequality
- Discrimination
- Trade union Power/monopsonist power
what has caused the North South wage differential
- Restructuring of the uk economy away from manufacturing and towards services have moved a lot of jobs to London
- This caused negative accelerator and multiplier effects in the north as unemployment eroded purchasing power causing firms to relocate and consumer confidence is low
- Manufacturing jobs had low MRP therefore workers do not have the financial resources resources to move to London
3 causes of Wage differentials between ethnic groups
- Generational poverty and wealth inequality
- discrimination
- poor access to education (lower mrp and language proffeciancy)
