The labour market Flashcards
(17 cards)
What are the factors affecting demand for labour
- Price of product
- Demand for product
- Labour productivity
- Price of capital
- PED (wage effect on employment)
Describe the factors determining industry supply of labour
- Quantity increases as wage increases because more people willing to work for higher pay
Describe the factors determining individual worker supply of labour
- Income effect = may stop at target income
- Substitution effect = higher wage means greater opportunity cost of work over leisure
- Overall wage effect = whether increased wages means increased hours worked
Explain marginal productivity theory
Only employ an additional worker if it adds to profit
- MCL = cost of hiring additional worker
- MRP = extra revenue gained from extra worker (MPP x MR)
- MPP = extra output gained from extra worker
What are the limitations of marginal revenue product
Assumed perfect knowledge, difficulty measuring (especially in service industry, teamwork, black markets)
At what point will an individual firm stop hiring additional workers
Where the marginal revenue product intercepts the marginal cost of labour
- (MRP decreases for each worker due to diminishing marginal returns and limited factors of production)
What are the factors affecting the supply of labour
- Pecuniary = wage, raises, bonuses, promotions
- Non-pecuniary = job satisfaction, job security, promotional prospects, working conditions, perks, social aspects
What are the factors shifting the labour supply curve
- Wage of substitute employers/occupations
- Barriers to entry into industry
- Non pecuniary characteristics
- Occupational mobility of labour
- Overtime
- Size of working pop
- Value of leisure time
What are the characteristics of a perfectly competitive labour market
- Lots of workers and employers
- Wages set by market
- Freedom of entry and exit
- PES
What are the limitations of a perfectly competitive labour market
- Hard to calculate MRP
- Never perfect in practice
- Other wage factors
- Responsibility and experience also impact wage
What is a monopsony
- A labour market monopoly (single employer)§
- Wage maker
- Max revenue by hiring up to MRP=MCL
- Distort efficient labour outcome
- Workers must work for monopsony employers due to lack of alternatives
- MCL > ACL because higher wages must be paid to additional worker as incentive
How do trade unions impact the wage and employment in competitive labour markets
- ↑wages
- ↓ employment
- Collective bargaining to control wage and supply
- TU power limited by legislation, economic restructuring and competitive pressures
How do trade unions impact the wage and employment in monopsony markets
- ↑ wage
- ↑ employment
- Make monopsonies wage takers through restricted labour supply
- MCL rises because wage must ↑ by more to hire past certain point
What is national minimum wage
The legal minimum which must be paid to all workers regardless of MRP or market structure
What is the impact of national minimum wage on competitive and monopsony labour markets
- Comp market = NMW set above ← wage, ↑ unemployment
- Monopsony = ↑wage, ↑employment
Evaluate national minimum wage
Pros
- Increase income
- Decrease poverty
- Motivation and productivity
- Investment incentive
- Offset impact of monopsony
- Work incentive
- Reduce wage gap
- Fiscal dividends
Cons
- Unemployment in competitive markets
- Black markets
- Costs
- Inflation
- Wage imbalance
- Increased demand for higher wages
- Govt expensive but public sector jobs
- Less competitive advantage
What is labour market discrimination
Pay different wages to different groups with same MRP based on prejudice and unfair bias such as gender, race, age, sexuality or socioeconomic background leading to info failure, inequality and misallocation. Can be limited or minimised through laws and regulations, affirmative action and education focus
