Studied by 2 people
What is the labour market?
Where buyers of labour services (employers) and the supliers of labour services (workers) interact to determine wage rates and the number employed
What are wage differentials?
Difference in wages that can occur between different group of workers. The happen because of imperfections in the labour market
What does demand for labour refer to?
The demand of firms looking for employees
What happens if the wage rate is above or below the equilibrium?
Above: surplus of labour (unemployment)
Below: shortage of labour
What is the supply of labour?
Refers to the amount of work each worker is prepared to perform at a given wage rate
What happens to wages if workers have scarce skills?
Wages go up
What are monetary factors?
The financial rewards to workers
What are non-monetary factors?
The non-financial rewards to a particular occupation
What are some examples of the opportunity cost to working?
Value of lost leisure time
Wages that could've been earned in another occupation
Welfare benefits received
What is the substitution effect?
As the wage increases the opportunity cost of leisure increases so people work more hours
What are some non-monetary factors?
Convenience and flexibility
Promotions
Job security
Holiday/leisure time
Job satisfaction
Perks/fringe benefits (company cars)
What is the supply of labour affected by?
Training and education
Taxation
State benefits
Gender:
Size of working population
Which factors have changed the affects of gender on the supply of labour?
Decline in primary/secondary industries that employed mainly men
Legislation changes
Tax/benefit changes (rewarding mothers who return to work)
What will happen to the supply of labour to an occupation if wages increase faster in other occupations?
Workers will supply more labour to this occupation
What will happen to the supply of labour to an occupation if there is a fall in the rate of income tax?
Workers will get to keep more money, so more will work in that occupation. More incentive to work.
What is net advantage?
The idea that monetary and non-monetary benefits should be the same across industries with the same occupation
What is the derived demand for labour?
The demand for labour is determined by the demand for the product or service that the labour produces.
What is the revenue product of labour?
The value of output produced by labour
What factors affect the demand for labour for an occupation?
Increased demand of goods and services
Profitability of firms
Productivity of workforce
What factors affect the demand for labour for an economy?
State of the economy (recession or boom?)
Wage rates
Productivity (if productivity is high, labour is cheaper than capital)
What are some laws that indirectly influence the demand for labour?
National minimum wage
Changes in tax rates
Job creation schemes
What might happen to the demand for labour to an occupation if the product's price decreases?
Fall in the demand for workers who produce the product as it's not selling well
What might happen to the demand for labour to an occupation if the productivity of workers increase?
Able to produce more of a good/service so leads to an increased demand for workers to produce more
What does perfect mobility mean?
Workers can always move between jobs
What is occupational immobility?
The inability of the work force to switch between jobs
What is geographical immobility?
The immobility of labour to move to another area, region or country
What are the causes of wage differentials?
Revenue product
Discrimination
Supply of labour
Bargaining strength of trade unions
Esteem of an occupation
Government policy
What are the justifications for wage differentials?
Incentives - higher wages means incentives to improve productivity
Revenue product of labour
Trickle-down effect (aspiration creates wealth)
What are the challenges for wage differentials?
Inequality of opportunity
Social problems (disenfranchisement)
Living wage (legislation is needed)
What is a cause of market failure?
Inequality - when a market fails to allocate resources to maximise society's welfare
What does the welfare state do?
Provides benefit payments
Provides vital social services
Funded through taxation revenue and National Insurance contributions
What are the benefits of the welfare state?
WELL
Welfare improves
Education and health improves
Less poverty
Living standards improved
What are the problems with the welfare state?
FAIR
Fairness
Administration costs
Incentives to work effects
Reduced international competitiveness
What are examples of direct taxes?
Income tax, national insurance, corporation tax, interitance tax
How are direct taxes used to redistribute income?
Transfer payments - one-way payment of money
Progressive taxation system (UK)
How do direct taxes have disincentive effects?
Workers are less inclined to earn a higher salary if they're going to be taxed more
What are examples of indirect taxes?
VAT, excise duties
What are the benefits of moving to indirect taxes?
Reduces disincentive effect: workers see less of their income being directly taxed
Consumers can choose which good to buy
What are the drawbacks of moving to indirect taxes?
Regressive nature
Affect those on lower incomes more than higher incomes - take up more proportionality of salary
What is income?
A flow of money received over a time period (often expressed as annual income)
What is wealth?
A sum of money and assests that an individual owns (financial and physical assets)
What are wages and how are they calculated?
Money paid by a business to employees in return for work
Paid weekly
Weekly wage = hours worked * rate per hour
What is a salary and how are they calculated?
Money paid by a business to employees in return for work
Paid monthly
Salary per month = annual salary/12
What is a piece rate?
Money paid by a business to employees in return for work
Weekly wage = number of items completed * rate per item
What are the benefits of salaries?
Guaranteed amount
Doesn't fluctuate
Enables budgeting
Easier to borrow as more secure
What are the drawbacks of salaries?
Have to wait a month to get paid
No overtime
Longer notice period
What are the benefits of wages?
Money every week
Can add via overtime
Enables weekly budgeting
What are the drawbacks of wages?
Spend more at once
Fluctuating wages
1 weeks notice
What are the benefits of a piece rate?
More motivated
Efficient way to work
Quicker manufacturing
What are the drawbacks of a piece rate?
Unable to work then no pay
Can lead to poor quality
How else do workers get paid?
Comission
Bonuses
Profit share (given share of buisnesses profit)
Fringe benefits
Pension schemes
What is gross pay?
Total income earned over a time period before any deductions
What are deductions?
Items taken off gross pay such as income tax, NI contributions and pensions
What is net pay?
The total income revieved after deductions
What is gross pay?
Total income earned over a time period before any deductions
What are deductions?
Items taken off gross pay such as income tax, NI contributions and pensions
What is net pay?
The total income received after deductions
What are the drawbacks of wages?
Spend more at once
Fluctuating wages
1 weeks notice
Note 
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