The Labour Market

T3, CC5 (Keywords)

Discrimination

the different treatment of people as a result of factors such as age, gender, race, sexual orientation, ethnicity.

Elasticity of Labour Demand

Measures the responsiveness of demand for labour (employment) when there is a change in the wage rate.

Flexible Labour Market

A labour market that adjusts quickly to changes in the demand for and supply of labour. Characteristics include flexible employment contracts and flexible pay.

Gender Pay Gap

The difference between male and female earnings, usually expressed as a percentage of male earnings. In the UK, the gender pay gap is around 20%.

Imperfectly Competitive Labour Market

An imperfectly competitive labour market occurs where either firms or workers possess price-setting power, meaning wages are not dictated solely by market equilibrium. Wages are typically determined by Marginal Revenue Product (MRP), where:

mrp=mpp\cdot price

Imperfections in the Labour Market

Monopsony Power, Trade Unions, Information Failure, Discrimination.

Labour Market Failure

A labour market in which there is not an efficient allocation of resources.

Reasons for labour market failure:

Discrimination, Economic Inactivity, Skills Shortages, Action of Trade Unions, Action of Monopsony Employers, Labour Immobility (geographical and occupational.)

Labour Market Flexibility

The speed and ability of a labour market to respond to a change in the economy. Flexibility is often regarded as essential for good supply-side performance in an economy. Flexibility can be in terms of occupation/skills, location, number of hours worked, pay arrangements etc.

Living Wage

A wage that provides enough money for a working person to live decently and provide for their family. That wage rate is estimated to be £9 per hour outside of London, and £11 per hour in London in 2019.

Maximum wage

A wage that is set below the equilibrium wage rate. In theory, the outcome would be an excess demand for labour, or a labour shortage.

Migration

The movement of people, especially workers, between countries.

Immigration

Refers to people entering a country.

Emigration

Refers to people leaving a country.

Net Migration

Refers to the difference between the number of people entering and leaving a country.

Minimum wage

A wage that is set above the equilibrium wage rate. In theory, the outcome would be an excess supply of labour, or unemployment - called the National Living wage since 2016.

Monopsony Employer

A labour market structure in which there is a single powerful buyer of a particular type of labour, e.g. NHS. In the case of the labour market, a monopsony employer will tend to pay relatively lower wages and employ fewer people (than in a highly competitive labour market.)

National Living Wage

The official name for the minimum wage in the UK since 2016.

NEET

A young Person (usually between 16 and 24) who is not in employment, education or training. There are around 900000 NEETs in the UK.

Real Wages

The hourly rate of pay adjusted for inflation.

Skills Shortage

A type of labour market failure in which not enough labour possesses the skills demanded by employers. Common in occupations which require high-level skills.

Trade Union

An organised group of employees who work together to represent and protect the rights of workers, usually by using collective bargaining techniques.

Wage Elasticity of Demand for Labour

The responsiveness of the demand for labour to a change in the wage rate of labour. %ΔDL / %ΔW

Wage Elasticity of Supply of Labour

The Responsiveness of the supply of labour to a change in the wage rate of labour. %ΔSL / %ΔW

Zero Hours Contracts

Do not guarantee a minimum number of working hours each week. In the UK labour market, people on “zero hour contracts” are more likely to be young, part-time, women, or in full-time education when compared with other people in employment.