Flashcards
Labour Markets
Cards in this deck (9)
- 1Demand for labour- Marginal Product X Price of product = Marginal revenue product
- Firms employ workers up to the point where: Wage (marginal cost of labour) = MRP
IF...
MRP > W - employ more workers
MRP < W - employ less workers - 2Supply of laboura) Individual supply - hours worked (Choice - work or leisure (not work))
- 3Effects of higher wages on labour supply- income effect - earn the same income for fewer hours worked ... Work fewer hours
- Substitution effect - every hour not worked costs more ; opportunity cost of one more hour of leisure is higher ; so leisure is more exspensive ... work more hours - 4Supply of labour Bb) Labour market clearing
- 5Why do movie stars earn more- Combination of perfectly inelastic supply AND very high marginal revenue
- Human capital: skills, abilities, knowledge of worker that helps determine wages
:Higher human capital, Higher education - 6Is it worth doing a degree- Costs of doing a degree full time (Up front - loans, tuition fees, books, foregone income)
- Benefits: Increased future earning power, increased job satisfaction, greater employability - 7Perfect labour market assumptions- Everyone is a wage taker
- Freedom of entry : no restrictions on the movement of labour
- perfect knowledge: jobs available, wages, what labour is available
- Homogenous labour - 8Supply of labour levels1. Individual worker
- 2 major costs: sacrifice leisure, unpleasant/tedious work
- Marginal disutility of work (MDU): Each extra hour worked will involve additional disutility, increase as more hours worked, upward supply curve, and explains overtime rates.
2. individual employer
- supply of labour - perfectly elastic
3. Market supply
- Mobility of labour - willingness and ability of labour to move to another job
:Increase if more alternatives in same location
:Increase in the long run - increase human capital
: Increase demand therefore increase wage rate
- economic rent - excess that a factor of production is paid over the amount necessary to keep it in its current employment - 9Demand for laboutProfit maximising approach
- weigh costs to benefits
- goods market - MR=MC
-Labour market - MC of labour = MR of labour: if an extra worker adds more to revenue then increase profits therefore employ them
Measuring marginal cost and revenue of labour
- MCL - extra cost of employing one more worker (Horizontal supply curve therefore MCL = W)
- MRPL - demand depends on MRP
- Marginal revenue the firm gains from employing one more worker
MRPL = MPPL X MR
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- Flashcards on Labour Markets, created by saraguild1 on 11/05/2015.
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- saraguild1
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