Flashcards
The Labour Market
Cards in this deck (44)
- 1What type of market is the labour market?A factor market
- 2The demand for labour is ...Derived Demand
- 3What is the demand for labour derived from?From the demand for the final product
e.g. the demand for pilots is derived from the demand for air travel - 4Where does demand in a labour market come from?The firms
- 5Where does the supply of labour come from?The households
- 6What might cause the demand for labour to change at every given wage? (1/4)If consumer demand rises for a product, the suppliers will need to increase their supply to meet the demand - to increase the demand they need to increase the amount of workers
- 7What might cause the demand for labour to change at every given wage? (2/4)An increase in the productivity of labour which makes using labour more cost efficient than using capital equipment
Firms may chose manual over tech etc
An increase in productivity can reduce the basic costs of making a product so they may employ more - 8What might cause the demand for labour to change at every given wage? (3/4)A government employment subsidy which allows a business to employ more workers (they can afford to take on more workers - e.g. if the wages fall)
- 9What might cause the demand for labour to change at every given wage (4/4)Technological advances
May replace workers, or it may require more skilled workers to use the machines - 10What may cause the demand for labour to fall?If the price of substitute factors (e.g. technology) fall, it is cheaper to replace labour with this factor
- 11What is marginal product?Additional output each extra worker can produce
- 12What is marginal revenue?How much extra revenue the marginal product will produce when sold
- 13What is the Law of Diminishing Marginal Returns?In the short-run, usually a diminishing marginal product when the worker number increases
As you add more and more of the variable factor to a fixed factor, marginal physical product increases at first and ten falls
This is a short-run phenomena - 14What does short-run mean?At least one factor of production is fixed
e.g. capital (such as a cooker) - 15What is marginal revenue product?Value of output produced by an extra worker
MRP = MR x MP - 16Labour is employed because of the value of their output. What does this depend on?Extra output each extra worker produces (marginal physical product - MP)
Extra revenue the extra product generates when sold
(marginal revenue -MR) - 17What is total revenue product?Total product x Price
- 18If wages are £60, look at the wage graph line at £60 and then across to the labour to see how many employees the firm will employ to the point where the costs are equalDemand depends on the value of output
- 19What will shift the demand for labour outwards? (Where more labour will be demanded at every given wage)With more training, capital or better management, labour can be more productive (MP increases)
If demand for the final product increases (MR increases)
If the price of a substitute factor of production increases (more likely to happen other the way round - due to automation/globalisation) - 20What are the problems with the marginal revenue product theory?How do we measure the productivity of service sector workers e.g. teachers?
MRP requires us to assume we can measure the output of each worker
MRP is difficult to measure as it is difficult to isolate - 21Why is MRP difficult to isolate?Individuals contribution when working in a team hard to separate
Contribution made by both labour and capital
Difficult to measure the MP of some workers in the tertiary sector e.g. surgeons - 22What does the elasticity of demand for labour depend on?Labour cost as a percentage of total costs (higher percentage leads to a higher impact - more elastic)
The time period - in the short-run firms will find it more difficult to replace labour. Over time demand is likely to become more elastic as more substitutes are available
The PED of demand for the finished product - low PED will find it easier to pass on labour costs to finished product i.e. demand for labour more inelastic - 23What is individual supply of labour?Higher wages usually will encourage a worker to supply more labour because work is more attractive compared to leisure
Therefore the supply curve for labour tends to be upwardly sloping - 24What is the substitution effect of a rise in wages?Workers will tend to substitute income for leisure as leisure now has a higher opportunity cost, this effect leads to more hours being worked as wage rise
- 25What is the income effect of a rise in wages?This occurs when an increase in wages causes workers to work fewer hours. This is because workers can get a higher income by working less hours
Therefore they may work less - 26What is the backwards sloping supply of labour?After W2, the income effect outweighs the substitution effect
People work less hours because they can get their target income from a lower number of hours - 27What is the market supply for the demand of labour?The substitution effect may be strongest for most people
The backward bending section is cancelled out
- 28What does the market supply of labour depend on?The real wage rate
Substitute occupations
Barriers to entry
Occupational mobility of labour
Non-monetary characteristics of specific jobs
Net migration of labour - 29How will substitute occupations effect the market supply of labour?The real wage rate on offer in competitor jobs affects the wage and earnings differential that exists between two or more occupations
- 30How will barriers to entry effect the market supply of labour?Artificial limits to an industry's labour supply (e.g. through the introduction of minimum entry requirements) can restrict labour supply
- 31How will occupational mobility of labour effect the market supply of labour?e.g. if more people are trained with the necessary skills required to work in a particular occupation
- 32How will non-monetary characteristics of specific jobs effect the market supply of labour?Include factors such as the risk with different jobs, the requirement to work anti-social hours or the non-pecuniary benefits that certain jobs provide including job security, working conditions, opportunities for promotion and the chance to live and work overseas, employer provided 'in-work training', employer-provided/subsidised health and leisure facilities and other in-work benefits including occupational pension schemes
- 33What does the elasticity of labour supply measure?The extent to which labour supply responds to a change in the wage rate at a given time period
- 34What type of jobs are supply elastic?Low-skilled jobs
(High-skilled jobs are supply inelastic)
(can be fixed supply if only one e.g. Adele) - 35What do wage differentials depend on?1. All jobs must be perceived as equally desirable
2. There must be no immobilities in the labour market
(if both are true - there would be no differentials)
(any differentials must exist as a result of the failure of these assumptions to be true) - 36What does 'equalising wage differential' mean?Cancelling out the differences in desirability between jobs
In the absence of labour immobilities:
Wage A + Utility A = Wage B + Utility B
Low High High Low - 37What is labour immobility?Retraining
This means that the supply of labour for some jobs will be both lower and less wage elastic than others - 38What are the causes of labour immobility?Occupational and geographical
- 39What are occupational immobilities?Restrictions that make it difficult to move between different jobs, and include access to training/retraining, length of time taken to convert, the need for innate skill or ability, the need for qualifications etc
- 40What are geographical immobilities?Restrictions making it difficult to move between areas of the country, such as house prices and the cost of living differentials between the north and south
- 41What are the arguments for the minimum wage?Helps to create a more even distribution of income across the economy, helping to reduce poverty, and therefore potentially having some impact on crime rates
Should be a tax pay-off
Should be a reduction in payments on income support
Should increase the stock of potential workers
Firms forced to invest in employees to make them more productive - increasing the quality of the economy's labour stock
Assisting economic growth - 42What are the arguments against the minimum wage?Increase costs for firms
May lead to job losses - firms make redundancies and reduce hours of work
Increase in house prices (inflation)
May lead to pay claims all the way up the scale
Force central bank to push up interest rates
Hire more experienced workers (young people will lose out)
Many of the poorest families do not have income earners at all, meaning that the minimum wage is unlikely to benefit them - 43What happens when the demand for labour is wage elastic and a minimum wage is introduced?Substantial reduction in employment and total earnings fall
- 44What rewards other than wage are available for a worker?Non-financial rewards: e.g. working conditions; healthcare; pensions; colleagues
Intrinsic nature of the job itself
Wage + desirability of job = reward for working
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- A level Economics (Micro) Flashcards on The Labour Market, created by Georgina McSharry on 08/02/2017.
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- Georgina McSharry
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