T3 3.5.1 Labour market

3.5.1 DEMAND FOR LABOUR

3.5.1 DEMAND FOR LABOUR

Where does the demand for labour come from

Firms

What type of demand is the demand for labour

A derived demand (based on the demand for goods and services)

Where is the supply of labour from

Households

What does the interaction of supply and demand determine with labour

The wage rate

What is the relationship between demand for labour and the market wage rate

An inverse relationship

What is labour productivity

The output per worker

What can firms do to labour to increase their productivity

Substitute it for capital

Why might some firms in certain economies specialise in capital intensive processes

Because labour is highly skilled and expensive

What happens to elasticity of demand when Labour costs are a high % of total costs

Labour demand is more elastic

What happens when Labour costs are a smaller % of total costs

Labour demand is more inelastic

What does price elasticity of demand of THE FINAL PRODUCT determine

Wether a firm can pass on higher labour costs to consumers in the form of increased prices

What is the formula for marginal revenue product

Marginal revenue product = Marginal physical product x Price of the product

What is the substitution effect

If capital becomes too expensive, firms will employ more labour

What happens to the Labour demand curve during a recession

It will shift inwards

Define the marginal revenue product of labour (MRPL)

MRPL is defined as the extra revenue generated when an additional worker is employed

What does MPP stand for

Marginal physical product

What does MR stand for

Marginal revenue of good

3.5.2 SUPPLY OF LABOUR

3.5.2 SUPPLY OF LABOUR

Define the supply of labour

The Labour supply is the number of workers willing and able to to work, multiplied by the hours they are willing and able to work

Determined by the wage rate

Why does the supply of labour curve slope upwards (with wage on the y axis

Because as a workers wage rises, more workers are willing to supply their labour

Who is part of the potential Labour supply

Inactive workers

What type of people may be inactive workers

Looking after family

Short and long term sickness

Students

Retired

Who counts as part of actual labour supply

Those who are economically active (Employed and Unemployed)

Who counts as employed

Self employed

Employees

On Gov schemes

Unpaid workers

What are some factors that shift the supply curve

The size of the working population

People’s preference for work (if people prefer more work then the supply of labour increases)

Work and leisure

Barriers to entry

Tax and benefit rates

Wages

Trade unions

What are some non monetary advantages of work that can affect labour supply

Improvements in working conditions

Job security

Holiday entitlement

Promotion prospects

How are work and leisure linked

They are substitutes for eachother

Why is part time work increasingly attractive

Because it gives the advantage of increased leisure

Is early retirement also a factor affecting Labour supply

Yes

What is an individuals decision to supply Labour greatly affected by

The choice between work and leisure

Why are work and leisure substitutes for eachother

Because time is fixed

What are the 4 factors that affect the choice between work and leisure

Age - Older workers gain more utlity from leisure

Direct taxes - Higher income tax rates may increase the utility of leisure and reduce labour supply

Dependents - Having children may increase the utlity of work and increase labour supply

Non work income - Some individuals retire early due to company pensions received before state pensions

What are two barriers to entry that can shift the supply curve to the left

The strict need for qualifications

If workers need lengthy training

How can tax and benefit rates lead to increases and decreases in the effective labour supply

If income taxes are excessive it could encourage a stay-at-home culture

If gov gives a subsidy (benefit) to workers to look for work or train, then supply of labour will increase

What percentage of UK employees are members of unions

30%

How can unions increase labour supply

By attracting workers into market due to the benefits of becoming a member

How can unions decrease the supply of labour

By exerting control over the Labour supply and/or going on strike

How can unions make the supply curve for unionised workers more inelastic

Via collective bargaining power

Do lower skilled jobs have a more elastic or inelastic supply curve

Elastic because it is low skilled so there is excess pool of labour so even a small change in the wage rate causes a huge boost in supply

Do higher skilled jobs have a more elastic or inelastic supply curve

Inelastic because there is less available excess workers so a larger increase in wages required to see an increase in employment

Why does the supply curve for an INDIVIDUAL not continue sloping upwards indefinitely