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Labour markets
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- 1what kind of demand is associated with the labour marketDerived demand-
as demand for goods increases the demand for workers in that field will also increase = greater output - 2nominal (money) vs real wagenominal (money) = value of wages
real wage = value of the wages or earnings that someone earns each year which have been adjusted to take into account price changes/ inflation - 3Question TextAnswer Text
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- 9Other factors which influence the supply of labour for a job or industry1. Size of the working population e.g. ageing population means that the supply of labour may be very small due to lots of people already being in retirement and not meeting the demand for labour
2. Competitiveness of wages - workers will pick the job which pays them the highest wage therefore firms that pay poor wages may struggle to attract enough labour
3. Publicising of job opportunity- it may be difficult to attract sufficient workers to a particular job/industry if the job is not advertised properly - 10Elasticity of labour supply determinants Low skilled vs high skilled jobsLow skilled
- tends to have elastic labour supply this means that small changes to the wage rate cause a larger rise in the quantity of labour supplied thus is because there is s large pool of unemployed low skilled workers looking for work
- tends to have similar wage rates, if one firm increases its wage rate low skilled workers will be attracted very quickly
High skilled
- supply for this type of labour tends to be inelastic particularly in the short run
- increasing the wage rate would only be effective at increasing labour supply in the long run as the training time required fo these jobs may take several years to complete
1. Mobility of labour also affects the supply of labour
- occupational mobility means that workers can move from one occupation to another quickly. Then Wage rises will cause greater increases in the supply of labour - more elastic
- geographical mobility means that labour can move locations to where jobs are then more wage raises will cause greater increases in the supply of labour labour supply will also be more elastic - 11Question TextAnswer Text
- 12Wages are made up of 2 components And what affects the size of these 2 componentsTransfer earnings are the minimum pay that is required to keep labour in its current occupation and prevent workers from switching to the next best paying job
Economics rent is the excess that workers are usually paid on top of transfer earnings
The elasticity of labour supply affects the size of the transfer earnings and economic rent
Inelastic labour supply = smaller transfer earnings and larger economic rent
Elastic labour supply = larger transfer earnings and smaller economic rent - 13wage differentialswage differentials are differences in wages between different groups of workers or between workers in the same occupation.
- 14why do wage differentials exist?1. workers that are highly skilled tend to be paid more e.g. if they are highly trained
2. wages vary in different regions and industries - in some locations e.g. London workers are paid more
3. trade unions can influence the wage rate paid to a group of people - 15perfectly competitive labour marketTheoretical model
2 graphs
-the whole labour market (industry)
-individual film in labour market
the individual firm is a price taker. the curve for labour supply is perfectly elastic because the wage is set by the market and the firm can hire as many workers as it wants
Supply of labour = Average cost of labour = Marginal cost of labour
Profit maximisation where MC = MRP - 16Monopsony is a type of _____ market and explanation of monopsony and what they can do.Imperfect market.
a Monosony is a firm which is the single employer of workers in the entire industry e.g. NHS and nurses
a monopsonist can pay a wage less than the workers MRP and less than they would have been paid in a perfectly competitive market.
this can drive down employment - 17monopsonist diagram1. the marginal cost of labour (MC) is above AC/ Sof labour so the cost of employing 1 extra worker is more than average cost beacuse each time an extra worker is hired they have to increase existing workers wage to the same level
2. supply of labour = AC showing the number of workers that are prepared to work at different wage rates
3. firms will hire workers where profits are maximised (MRP=MC) & monopsonist will pay workers lower where supply meets that intersection point
Monopsonies are price makers
- 18what are Trade Unions and what do they do?a trade union is an organisation formed to represent the interests of a group of workers.
-they can bargain with employers for better pay
-better working conditions
-job security
-safety
-fight against discrimination - 19trade unions use...collective bargaining
this is negotiating with an employer which can be on a national scale or at a firms level
productive bargaining
this is unions agree to specific changes which will improve productivity, in return for higher wages and other benefits - 20Trade union membership peaked in the late 1970sIn 1979 trade union membership had peaked and they were very powerful
During 1980s Thatcher government ment that the Conservative government acted to reduce the power of trade unions
The government weakened trade unions asa supply side policy to make labour more flexible
There was also mass deindustrialisation due to big declines in manufacturing industries in the 80s and 90s which had powerful trade unions attached to them
This led to more labour moving towards the service sector and thus declines in the membership of trade unions - 21pay rises negotiated by trade unions may not lead to unemployment...trade unions help to increase wages of their members without causing unemployment. For this to happen productivity of members has to rise - this would increase the demand for workers from firms.
increased productivity = greater output = increased profits
this shifts the MRP curve rightwards - 22trade unions effect of monopsont labour marketa monopsonist employer pays workers a wage that is lower than their MRP
when a trade union enters a monopolistic market it is an example of Bilateral monopoly= one buyer and one seller
the trade union would increase wage rate and thus change the shape of the s=AC curve and the shape of the MC curve. Increasing the employment level - 23trade unions powergovernment regualtion has reduced trade union power meaning less chance of market failure as they have less influence
trade union have caused higher pay, better working conditions in return for more productive ,flexible workforce - 24wage discriminationwhen employers with monopsony power pay different wage rates depending on a workers willingness to supply labour
common between employees that negotiate their own pay and conditions - 25labour market discriminationwhen a specific group of workers is treated differently to other workers
1. racial discrimination
2. gender discrimination - gender pay as some employers are willing to pay men a higher wage than a woman in the same job - 26how does discrimination occuremployers that prejudice believes that the marginal revenue product (MRP) of a particular worker is lower than what it is. therefore fewer of these workers are demanded
- 27how can discrimination lead to increased costs for the government and economy-welfare to discriminated workers
-unfairly low wages can lead to reduced taxes - 28economically inactive reasons1. in full time education
2. care for elderly or sick (unpaid)
3. long term illness or diability
4. choose not to have a job - 29economic inactivity meaningnot working and not looking for work
- 30labour market failure1. imperfect information - e.g. workers not picking the right job for them = unproductive
2. unemployment - waste of a scarce resource - - 31labour force meaningThe labour force is the people who are willing and able to work
- 32working populationThe workforce is everyone either in work or actively seeking work
- 33dependency ratio the participation rate replacement ratioDependency ratio is the total number of individuals who are dependant on others e.g. children and elderly
The participation rate is a measure of the active portion of an economy's labor force
A Replacement Ratio is a person's gross income after retirement, divided by his or her gross income before retirement - 34correcting market failure - government interventionsuch as unemployment or very low wages
- 35national minimum wage what does it do?aims to do? benefitsthe NMW aims to make wages fairer
-it sets a minimum hourly rate of pay for different age groups
-it aims to prevent exploitation of workers due to the payment of unfairly low wages
+leads to more equitable distribution of income
+provides an incentive for people to work instead of claiming benefits (increasing labour supply) - 36however the national minimum wage may lead to __________unemployment
If the NMW is higher than the wage equilibrium for the industry ut causes supply of labour to increase but demand to fall
= excess supply of labour = unemployment
This is an example of Government Failure - 37but this depends on _________elasticity of the supply of labour
- 38advantages and disadvantages of the NMW+ helps those on very low incomes and reduces poverty
+incentivises people to find work as it means the job will have a greater reward for working
+ tax revenue will increase
+happier workers = productive
- NMW can increase wage costs, therefore, leading to unemployment
- this could decrease international competitiveness due to high costs of production
-could lead to inflation as firms have to increase prices to meet these price increases - 39the 'Living Wage'this is an hourly wage independently worked out, it is a wage that will cover an individual's basic coast of living in the UK and is higher than the NMW
- 40Maximum wagea maximum wage limits a workers wage rate, it is set below the market equilibrium pushing up labour demand
+rises in wage increase productivity can cause inflation to getting a maximum wage can limit how much prices can rise and help to prevent wage-price spiral
+can limit the level of inequality
+can reduce firms labour costs and increase willingness to hire more workers
-not being able to progress = lack of motivation - 41flexible labour forcea flexible labour force is one where workers can transfer between activities quickly in response to changes in the economy
- 42Government's can increase flexibility of a workforce by...Government's can increase flexibility of a workforce by
-promoting subsidised training and education schemes that help workers gain skills and knowledge that are attractive to employers
-increasing apprenticeships and vocational education and restructuring the exam system. These schemes should improve the labour market flexibility by helping young people to develop skills they need to get a job it takes time for these effects of these changes to be seen so it can be awhile before anyone can assess whether they've been successful or not
-reducing the power of trade unions - 43Short term contracts zero hour contractsShort term contracts allow firms to hire a worker for a certain length of time (like 6 months)
if the Firm still needs the worker towards the end of the contract they can extend the contract for a longer period to suit their needs
zero-hour contracts are when firms can hire workers without guaranteeing the definitive number of hours of work per week the employer can offer these employees and number of hours that suits the firms needs
+ the cost of employing staff on these contracts is less than full-time contracts and they also not giving sick pay
+reduces unemployment
-dint guarantee income
increasing the number of part-time workers and increasingly flexible working times in the UK can also increase the temporal flexibility of Labour - 44temporal flexibility of Labourthe ability to change the number of hours worked
- 45Government might be forced to make changes to pensionspeople are living longer - we have an ageing population
government's made need to change the way the state pensions work to ensure that they can continue to afford to pay pensions to an increasing number of people for an increasingly long time - 46Methods government's can use to change pensionsMethods government's can use
raising the state pension age this means of the average pensionable have few years claiming the state pension as people are living longer they should work longer before starting to pay attention
increasing the contributions necessary to qualify for a state pension in the UK to qualify to receive a state pension you need to have paid National Insurance contributions for a certain number of years this is paid by workers when they can earn a certain amount pension reforms may see the number of years of necessary contributions increase
decreasing the amount paid out this means that people will need to do more planning and saving for retirement while they're working so they can have enough money to live on when they retire this is why when UK government's made it compulsory for employers to enrol workers in the workplace pension so the retirees have extra income in addition to the amount they receive from their state pension - 47Government's can increase the incentive to work they can do this by1. lowering marginal tax rates means workers get to keep more of their earnings this acts as an incentive to work more and can increase the labour supply of the economy
2. lowering benefits increases the gap between income and in work and incomes without work it reduces the replacement ratio this means people will have great incentives to work increasing the participation rate and labour supply
lowering a benefits will reduce the effect of the unemployment trap and cut voluntary unemployment - 48The UK and EU implement legislation and regulation in labour markets for a number of reasons1. prevents workers from being exploited
2. Legislation involves putting specific laws in place
3. Regulations are rules which are often put in place so that the UK or EU legislation is met - 49The working time directivethe working time directive is an example of an EU directive it sets out rights for workers such as:
a limit to average weekly working hours to 48 hours
employers must give a minimum of four weeks paid leave per year
a minimum daily rest period of 11 consecutive hours in every 24 hours
average working hours for night workers shouldn't exceed 8 hours per 24 hour. - 50advantages and disadvantages of directivesadvantages for employees include that they are entitled to any minimum amount of paid leave which is standard across all jobs and their workers aren't overworked
a disadvantage for employers is that the implementing of directives can increase their costs - 51Migration effects+migrant workers that are young and skilled will generally have positive effects on the economy
+these workers will earn and spend money which increases aggregate demand in economy
+migrant workers can fill the skills gap
free movement of workers between the EU member states has were allowed workers to migrate to different EU countries
in UK there is when a net inward migration of working-age people in recent years from EU and non-EU countries this helps the UK cope with the problem of an ageing population
+ migrant workers increase the supply of Labour available - 52governments may try to reduce immigrationparticularly of low skilled workers this because the high levels of migration to the EU is believed to be unsustainable the government is more supportive of skilled migrants coming to the country as they can contribute more the UK economy
the effectiveness of government policy to reduce immigration is limited by number of factors as a member of the EU the UK is restricted on the rules it can implement on immigration. The main reason for this is that the Freedom of movement of EU citizens to any EU member nation is an important principle of the EU and it's written into EU Treaty - 53to limit immigration....a cap is placed on the number of skilled workers visas available to non-EU workers
restrictions on certain welfare benefits has been brought in to make the UK, less attractive to migrants so EU migrants can't claim benefits such as job seekers allowance during the first 3 months in the UK - 54Income and wealth definitionIncome is the flow of money to an individual over a period of time
Wealth is a stock asset that has financial value - 55Measuring inequalityGini coefficient is used to compare income inequality
Using the Lorenz Curve
The line of equality is where everyone has the same level of income
The greater the extent of inequality the further the gap between the Lorenz curve and the line of equality
Gini coefficient is the ratio of the area between the Lorenz curve and the line of equality
(A /A+B)
The higher the gini coefficient the more inequality there is - 56EU DirectiveAn instruction from the EU to a member country to achieve outcomes
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- A level Economics Karteikarten am Labour markets, erstellt von Anna Zavolnyi am 12/02/2018.
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