Theme 3: Labour markets

Question 1

Factors that effect the demand for labour

Answer 1

• Wage rate
• Demand for products
• Productivity of labour
• Substitutes for labour
• How profitable the firm is
• Number of firms in the market

Question 2

Factors that effect the supply of labour

Answer 2

• Wage rate
• Demographics of the population
• Migration
• Advantages of work
• Leisure time
• Trade unions
• Taxes and benefits
• Training

Question 3

Geographical immobility

Answer 3

The obstacles which prevent the FOP moving between areas.

Question 4

Occupational mobility

Answer 4

The obstacles which prevent the factors of production changing their use eg collapse of the mining industry

Question 5

What is Keynes’ theory of ‘sticky wages’?

Answer 5

Rather than lowing the wage of several wages during a recession a few workers might be sacked instead.

Question 6

What causes wage differentials for the same job?

Answer 6

• Formal education
• Skills, qualification and training
• Pay gaps
• Wages and skills
• Gender
• Discrimination
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Question 7

What is the impact on the labour market of migration?

Answer 7

More competition to get a job and might bring high quality skills to the domestic workforce and so effect the wages of the lowest paid in the domestic workforce.

Question 8

What is the aim for unemployment rate?

Answer 8

3%

Question 9

What are issues with an increasing unemployment rate?

Answer 9

• Less disposable income and their standard of living might fall as a result.
• Psychological consequence of losing their job.
• government have to pay more on benefits, opportunity cost.
• Less revenue from income tax
• Youth unemployment, hysteresis, when someone is out of work for so long they’re no longer employable.

Question 10

Draw a national minimum wage diagram

Answer 10

Question 11

What are the positive impacts of a national minimum wage?

Answer 11

1. Increase standard of living of the poorest and provide an incentive for people to work.
2. More tax revenue, due to more people earning higher wages.

Question 12

What are the possible consequences of an increase in NMW

Answer 12

1. Make it harder for young people to find a job.
2. may make a country less competitive on a global scale.
3. rise in unemployment

Question 13

What is a maximum wages purpose?

Answer 13

1. Limits how much income a person can earn. It can be used as a means to redistribute wealth more equitably in society.
2. It should limit inflation

Question 14

What are the possible downsides of a maximum wage?

Answer 14

Could be a disincentive to innovate and workers might opt for less demanding work.

Question 15

Benefits of public sector wage setting

Answer 15

• Public sector pay is more equal than private sector pay
• and has grown more than private sector

Question 16

Policies to tackle labour market immobility

Answer 16

1. Trade union power
2. Regulation
3. Welfare payments and income tax rates
4. Training
5. Infrastructure
6. Housing

Question 17

How does trade union power tackle labour market immobility

Answer 17

Trade unions increase job security and push for higher wages

Question 18

How do regulations tackle labour market immobility

Answer 18

More freedom to hire and fire workers and the more freedom workers have in terms of rights, the more flexible the labour market is.

Question 19

How do welfare payments and income tax rates tackle labour market immobility

Answer 19

The reward for working should be high. If welfare payments are generous and income tax rates are high, labour market flexibility is likely to be lower.

Question 20

How does training tackle labour market immobility

Answer 20

More widely available and more skilled workforce makes the labour market more flexible.

Question 21

How does infrastructure tackle labour market immobility

Answer 21

Improving infrastructure might help the geographical immobility of labour, since it becomes easier to move around the country.

Question 22

How does improvements in housing tackle labour market immobility

Answer 22

If housing becomes more affordable then people can move around the country more freely reducing geographical mobility.

Question 23

What is the elasticity of demand impacted by?

Answer 23

1. How much labour costs as a proportion of total costs
2. The easier substitutes are
3. The PED of the product

Question 24

What is price elasticity of supply of labour effected by?

Answer 24

1. The skills of the workforce. Skilled jobs have lower elasticities than unskilled jobs because its more difficult to attract workers,
2. Length of training
3. Sense of vocation, rewards that are not financial eg teaching
4. Time period