Labour

Labour

1. Supply of labour

   • = amount hours FOP willing to work
   • consider real wage after inflation accounted for
   • wages low?
     • FOP may not work
       • claim benefits instead
       • or substitute work for leisure
       • wage rate wises
         • FOP enter job market
           • (or work more hours)
   • Shifts in supply curve
     • increases if:
       • increase in hours worked by currently employed
       • increase in number of FOP employed
   • Elasticity of supply of labour
     • looks at responsiveness of FOPs to wage changes
       • availability of suitable labour in other industries
         • workers with transferable skills?
           • more transferable skill - lower wage increases
       • time
         • how long it takes to skill up
       • extent of underemployment
         • many workers who want to work?
           • and job unskilled - elastic market

2. Demand for Labour (AS)

   • D curve shows how many workers will be hired at certain wage
   • firms can vary FOPs
     • higher wage means
       • firms sub workers for machines
         • so lower demand for labour
   • firms have stocks of capital
     • more workers added to their capital
       • the less likely a new worker will be as productive
         • wage must fall to hire more
   • Shifts in curve
     • productivity of labour may change
       • increasing output means marginal productivity increases
         • so employers pay more
     • price of g/s may change
       • higher prices higher wages
   • Elasticity of Demand for Labour
     • time
       • longer time period for adjustment
         • less likely to substitute
           • redundancy pay may be needed
             • but in long term firms buy the machines
     • Availability of sub's
       • easier substition so more response to wages rise
         • higher elastcitiy when better sub's
     • Elasticity of demand of the product
       • Labour is a derived demand
       • Low prices & no demand for good? no demand for labour!
     • Production of labour to total costs
       • rise in unit labour costs will reduce supply so less demand
       • workers taking up massive production costs?
         • higher elasticity of demand for labour when workers take up large proportion of costs

3. Wage determination

   • they're determined by supply/demand for labour
     • curves make equilibrium wage rate
   • Trade unions
     • force wages up
       • to hire more maybe?
         • wage remains at high level until high amount of workers
     • may cause unemployment - wages too high
     • reduces countries competitiveness
   • Welfare payments
     • impacts amount of labour FOP will take on
     • replacement ratio
       • what FOP can earn in work compared to benefits
         • so how much income will decrease
     • Gov gives tax credits
       • persuade FOPs to make work pay
         • but may provide reason to firm to have low wages
   • Immigration
     • migration keeps wages low
       • inlfation low
       • fills non desirable jobs
   • Regulation
     • increase in women in labour market
       • parents have right to apply for flexible working
         • increases flexiblity for forms _ part time
         • increases supply
     • self employment - internet
   • Minimum wage
     • has to be above equilibrium to effect
     • excess supply as workers happy
     • firms suffer higher wage bill
       • demand reduced
         • especially if machines can sub in
     • one wage for all, technically a minimum price

4. Laffer Curve

   • work is inferior good
   • leisure - normal good
   • higher wages reduce amount people work & increase leisure time
   • decrease in tax - increases hours worked
   • work rises - so does tax
   • decrease in tax rate CAN increase tax revenues