labour market 2

marginal revenue product

revenue gained by selling the extra output produced by employing one more unit of labour

MP x MR

shifts of the labour demand curve

1. changes in productivity

2. changes in selling price

3. price of substitute factors (capital)

4. other labour costs (pension contributions)

marginal revenue product

revenue gained by selling the extra output produced by employing one more unit of labour

MP x MR

shifts of the labour demand curve

1. changes in productivity

2. changes in selling price

3. price of substitute factors (capital)

4. other labour costs (pension contributions)

elasticity of labour demand

measures the responsiveness of labour demanded given a change in the wage rate

factors affecting the elasticity of labour demand (SECT)

1. substitutability of capital for labour

2. elasticity of demand for the final product

3. cost of labour as a percentage of total costs

4. time period

shifts of the supply curve

1. wages on offer in substitute occupations

2. barriers to entry (skills and education)

3. non-monetary characteristics of the job (healthcare benefits, pension plans)

4. improvements in occupational mobility of labour

5. overtime

6. size of working population

7. value of leisure time

elasticity of labour supply

measures the responsiveness of labour supplied given a change in the wage rate

factors affecting the elasticity of labour supply

1. the nature of skills required in the job

2. the length of the training period

3. vocation (love for the job)

4. time

characteristics of a perfectly competitive labour market

1. many potential workers and employers

2. labour is homogeneous

3. perfect information

4. firms are wage takers

5. no barriers to enter or exit

trade unions

group of employees who use collective bargaining to increase wages, improve working conditions and stand up for workers’ rights

trade unions in a perfectly competitive market

trade unions in a monopsony

monopsony

sole employer of labour in a given profession

wage differentials

difference in wage

they would not exist in a perfectly competitive labour market

labour market imperfections

1. labour is not homogeneous

2. non-monetary considerations

3. labour is not perfectly mobile

4. trade unions and supply restrictions

5. monopsonies and wage setting ability

characteristics of a monopsony

1. wage maker

2. will maximise revenue from workers by hiring where MRP = MC