Economics Labour Market

What is derived demand ?

Derived demand refers to the demand for a factor of production that results from the demand for the goods or services that the factor produces. For example, the demand for labour is derived from the demand for the products that labour helps to create.

What are the 2 reasons why the DL curve is sloped ?

Income effect: As wages rise, employers will employ less workers if they have a fixed budget they can spend on labour

Substitution effect: As wages rise, it becomes more attractive for firms to use more capital eg.machines and less workers

What is the Marginal Revenue Product of Labour (MRPL) theory?

Marginal Revenue Product of Labour = Marginal Physical Product x Marginal Revenue

MPRL also = DL

so… an increase in either the marginal physical product or marginal revenue will lead to an increase in the demand for labour

What are the 5 reasons for an change in the demand for labour ?

• A change in demand and expected future demand for the firms products + revenue that can be earned from it

• A change in the price being paid for the product produced ( an inc in price leads to an inc in DL)

• A change in the productivity of labour ( the higher the output, the more attractive labour is as a resource)

• A change in complementary labour costs

• A change in the price of a substitute factors of production

What is the WEDL ? Formula ?

The responsiveness of a firms quantity of labour demanded to a change in the wage rate in a given occupation

%change in quantity of labour demanded

---

%change in wage rate

Is the figure for WEDL pos or neg and why ?

Negative as its an inverse relationship

Wat number is WEDL elastic in demand ?

Greater than 1

A change in the wage rate will lead to a more than proportional change in the quantity of labour demanded

What are the factors that determine the WED ?

S - availability of Subsititute factors of production

T - Time

E - PED of the final product

P - Proportion of total costs that are labour costs

What factors of WED would make the procdut wage inelastic in demand ?

• Low proportion of total costs are wage costs

• The PED of the final product is inelastic

• Labour is not easily substitutable for capital

• Short run it will be more inelastic

Where does the supply of labour come from ?

Households

What are the 8 factors that affect the supply of labour ?

• Net advantages to the job

• Barriers to the occupation caused by the level of qualifications required

• Difficulty in accessing qualifications

• Wage and non-wage benefits of an alternative occupation

• Labour migration

• Income tax + benefits

• Presence of trade unions

• Social trends

What is the wage elasticity of supply of labour (WESL) and the formula ?

The responsiveness of labour supply to a change in the wage rate of a given occupation

%change in quantity of labour supplied

---

% change in wage rate

What are the 4 factors that affect the WESL ?

QU - qualifications

I - Immobility

L - Length of training

T - Time period

What would make WESL Inelastic ?

• Higher amount of qualifications needed

• More immobile

• Longer the length of training

• Short run

What assumptions are made about a competitive market ?

• Many buyers (firms) and sellers (households) of labour services

• Perfect information for both parties

• Perfect mobility between jobs

• no government failure

• no labour market failure

Would wages be high when labour is high/low and inelastic/elastic ?

High and inelastic

What is a wage differential ?

The differences in wages

When does labour market failure occur ? what is the main reason ?

When the market forces of demand and supply do not result in an efficient allocation of labour resources

Main reason is immobility of labour

What is geographical immobility of labour ?

When the supply of labour is unable to move freely between occupations because of difficulties with high job opportunities and higher wages from a location of high unemployment and low wages

What are the key examples of geographical immobility of labour ?

• Regional house price differences

• Family and social ties

• Language barriers

• Differences in living costs

• Search costs ( time and money spent trying to find a new property in a new location )

• Cost of travel between regions

What is occupational immobility of labour?

When the supply of labour is unable to move freely between occupations because of the difficulties in moving from one occupation to another

What are the causes of occupational immobility?

• job specific skills acquired over a number of years

• Habit / comfort zone in a particular occupation

• Occupational pensions

• Lack of information about job opportunities

• Barriers to entry in certain occupations ( eg qualifications)

• Older workers less likely to retain

• Loss of skills and motivation through long term unemployment

What are the causes of labour market immobility ?

• Persistent labour shortages/ labour surpluses in particular geographical and sectorial markets

• Structural unemployment (mismatch of skills tha workers have and that employers want )

• Inflexible labour market

• Rising wage and income inequality

• Deepening of regional economic divide

What is a minimum wage ?

A minimum wage is a pay floor, that by law employers are not allowed to pay below

What the current minim wages ?

What does a minimum wage diagram look like ?

What are the 4 potential benefits of minimum wage ?

• protects employees against exploitation by a small minority of bad employers

• Reduces poverty by raising standards for the lowest earners

• Raises productivity “efficiency- wage theory “

• Improves incentives to work by ensuring work pays to reduce voluntary unemployment/ economic inactivity

• Reduces inequality across the country

What are the potential drawbacks of minimum wage ?

• excess supply of labour caused by disequilibrium in the labour market leading to higher unemployment

• Ripple effect - above minimum wage earners may also want higher pay to maintain wage differentials

• Firms may cut back on training and other forms of employee costs

• Increase in minimum wage may discourage further hiring of workers

What does the successs of minimum wage depend on ?

• Amount by which minim wage is set above equilibrium wage

• WEDL + WESL

• Level at which minimum wage is set compared to median income

• Enforceability and policing

Why is the minimum wage well designed ?

• it increases gradually + annually in small increments so firms have time to prepare

• Designed by technocrats

• Only a small impact on unemployment

• Lower than 50% of median income

• Lower rate for young people so it reduces risk of youth unemployment

What is maximum wage ?

A maximum wage is a pay ceiling

What are the benefits of a pay ceiling ?

• reduces further rises in income inequality

• Reduces business costs so prices to the consumer

• Leads to improvements in moral among lower paid staff

What are the drawbacks to a pay ceiling ?

• Occupation may not attract best talent for the job who could be paid higher elsewhere

• Can lead to brain drain where people leave a country to go to another

• Could restrict productivity and profitability as incentives to work are lower

Why does the govt need trade unions ?

As the govt is a monopsonist employer they could exploit their workers by paying them below their true value

What is labour migration ?

Where individuals move from one place, region or country to another

What are the microeconomic effects of an increase in emigration ?

• rise in wages paid

• Fewer people in the occupation

• Rise in the businesses costs of production leading to a rise in the costs goods + services

• Allocative inefficiency as Sl is less than Dl

What countries have seen a rise in inward migration and outward migration?

Inward - UK, Sounth Africa

Outward - India , Mexico, Hong Kong

What is a skills shortage ?

Where employers are unable to fill vacancies in an occupation because the skills of individuals (labour supply) do not match the skills required by firms (labour demanded)

What are greatest skills shortages / surpluses ?

Shortage - Building + construction , design , mechanical

Surpluses - clerical , sales + marketing, food production

What are the reasons for skills shortages ?

• Short supply of skilled personal due to unattractiveness (pecuniary + non-pecuniary )

• Poor curriculum design where training + education

• Difficulty/ barriers in accessing the occupation

What are the policies for reducing skills shortages ?

• Modern apprenticeships

• Increasing visas

• Employment subsidies

What is the formula for youth unemployment?

Why does youth unemployment tend to be harder than unemployment for all ages ?

• lack of info about careers

• Lack of appropriately

• Lack of skills ( human capital )

• Credentialism (lack of credentials )

• Rise in retirement age providing fewer job opportunities

What are the consequences of youth unemployment?

• Reduces lifelong earning

• Social costs of youth unemployment (crime + loitering)

• Emotional problems (mental wellbeing + lack of self-esteem )

• Loss of potential economic output

How does aging population affect labour markets ?

What govt policies are in place to tackle aging population?

• Raising of state retirement age (65 to 68)

• Actively promoting older workers ( B & Q)

• All under 18s into some form of education + training

What factors are likely to lead to a person NOT being replaced by technology ?

• Caring professional/pastoral which requires emotional intelligence + interpersonal skills

• Knowledge based occupations which require complex problem solving + critical thinking skills

• Manual dexterity and fine motor skills ( eg plumber , electricity )

What is a trade union ?

An organisation established to represent, protect and improve the pay and working conditions of its members .

Normally on a regional basis

What are the key objectives of trade unions ?

• Maximising pay

• Achieve safe and secure working conditions

• Maintain job security especially in the face of globalisation, technology and economic uncertainty

• Participating in and influencing descicions in the workplace

• Lobbying govt to improve employment legislation

• Individual employee protection

What is collective bargaining ?

Negotiations between management and employees representatives generally a trade union on pay and working conditions

How do you calculate trade union density ?

What is an industrial dispute ?

Where there is a disagreement between an employer and an employee .

What is examples of industrial disputes ?

• Strikes - continuous or succession of one day strikes ( must be agreed by secret ballot )

• Work to rule - follow every procedure and job description to the letter

• Overtime ban - employees not prepared to work beyond their contracted hours

What is a gig economy ?

The collection of markets that match providers to consumers on a gig (or job) basis in support of on-demand commerce

• Short term contracts

• Freelance jobs

What are benefits to workers of a gig economy ?

• Flexibility of hours - work when want to

• Job variety working multiple businesses

• Ideal for students to complete full-time study

• Supplement income from other more permanent work

What are the drawbacks to workes of gig economy ?

• Reduced employee rights

• Struggle to obtain loans, overdrafts & other forms of credit

• No guaranteed hrs therefore no guaranteed pay so difficult to plan finances