Labour Markets

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