Labour markets

The demand for labour is a

Derived demand

What is Marginal productivity theory

It states that the demand for any factor of production will depend on its marginal revenue product (MRP)

Marginal Revenue Product of labour (MRPl) is

An additional revenue, gained by hiring one more worker

An example of using MRPl

MCl

The Cost of hiring one additional worker is

In the perfectly competitive market, the MCl equals to

the wage, paid to an additional worker

MRPl equals

MPPl*MR

Generally, the demand for labour will decrease as the wages rise, however this depends on

whether the wage increase is accompanied by an increase in productivity

Higher levels of productivity reduce the

unit labour costs

What are the unit labour costs

labour costs per unit of output

this means that the unit cost for labour stays the same, and then the demand for labour is unaffected

An example of unit cost of labour staying the same, which means the demand for labour stays untouched as well

What could high unit labour costs do to the country entirely?

Reduce its international competitiveness

In case of the unit labour costs reduction is also experienced in other firms, then

the international competitiveness will stay unchanged (since other countries’ productivity increased too)

International competition may mean the unit labour cost in a particular industry is too high in some countries for them to be

competitive and production in that industry will stop

MRPl curve is also the demand curve for

labour

The decreased demand for labour would cause the MRPl to

shift to the left

Factors, affecting the labour productivity

imposition of new technology or training increases the productivity of labour, this would increase the demand for labour and make the MRPl curve shift to the right

If any other costs of labour (besides on the wages) increased, then

The MRPl curve would shift to the left

Elasticity of demand for labour is

A measure of how much the quantity of labour demanded changes in accordance with changes in wages

Factors, influencing the Labour demand Elasticity (LDE)

Individuals labour supply is

The total number of hours that they would like to work at a given wage rate

For an occupation, the labour supply is

the total number of workers willing to work at a given wage

The labour supply may be influenced by

job satisfaction

The net advantage of a job could be divided into to groups

Other factors that impact labour supply to a particular job or industry

The quantity of labour supplied depends on

The elasticity of labour supply

The main determinant of elasticity of labour supply is

the level of skills and qualifications needed for a job

Low skilled jobs

High skilled jobs

Another factor, affecting the labour supply

The mobility of labour

Another aspect, which can increase the supply of labour

Net migration of labour

The wages tend to be high, if

The demand for labour is high and inelastic, supply is low and inelastic

The wages tend to low, if

The demand is low and elastic, the supply is high and elastic

Transfer earning

The wage to keep the labour force functioning

Economic rent

Money, paid besides on the transfer earnings

In perfectly competitive Labour markets, firms are

Price takers

Monopsony market means

A market with only one buyer

In a monopsony labour market, there is only one

employer to work for

A monopsonist employer can pay the wage

Lower than the worker’s MRP

Trade unions increase the

bargaining power of the workers

Productivity bargains

Trade union wage negotiations might result in

Unemployment

Trade unions can cause labour market failure by forcing the wages up

to the rates higher than the market equilibrium wages, causing a surplus of labour

Pay rises, negotiated by trade unions may

Not lead to unemployment

How can trade unions, negotiating for the pay rises, not end up fostering excess labour supply

In monopsonistic labour markets, trade unions can

increase the wages and jobs

Since, in a monopsonistic market, the wages, paid to the workers, are lower than their MRP; with trade union,

the wages could be increased up to the Equilibrium ones

A monopsony with a present trade union is labelled as a

bilateral monopoly, because it has a single buyer and a single seller

Wage discrimination can result in

lower wage costs for firm

The wage discrimination takes place when firms with monopsony power pay

different wage rates, depending on workers’ willingness to supply labour

Labour market discrimination

Workers being discriminated, based on their race, gender etc

Disadvantages of wage discrimination

Advantages of wage discrimination

A lot of employers believe that

the MRP of employees, that they discriminate, tends to be lower

By discriminating against workers, based on such a concept, employers

miss out on a lot of qualified and efficient workers, who in fact have a much higher MRP. This entirely leads to lower efficiency of the firm and higher costs, lower wages(as the MRP curve shifts to the left)

Employers, that do not discriminate,

have larger supply, their supply curve shifts to the right, which makes the discriminated workers’ wages even lower

Discrimination, generally, leads to

increased costs for both government, and the economy

The costs of discrimination include

Necessity to pay benefits to unemployed individuals, absence of allocative and productive efficiency in some industries (decreased international competitiveness), absence of taxes that could have been paid by discriminated employees

Skill shortages in some labour markets lead to

Increased costs for the firms

Incentives might be given out,

in order to motivate people to work

It is widely argued that, imposing

the National Minimum Wage (NMW), leads to unemployment

Advantages of introducing the NMW

Disadvantages of introducing the NMW

The living wage covers

the basic cost of living