3.5.3 - wage determination

where is the labour market equilibrium

labour demand = labour supply

are individual firms price takers or makers

price TAKERS - have to accept the industry wage rate

changes in the labour market can affect…

…wage rates

…working conditions

…standards of living

6 labour market issues in the uk

skills shortages

youth unemployment

retirement ages

school leaving ages

zero-hour contracts

flexible working

skills shortages

have to increase wages to attract labour

eg. engineering, teaching

youth employment

employers prefer ppl with more experience

ppl leaving school without skills necessary for work

youth unemployment 2022 at 10.8%, while general unemployment at 3.8%

retirement ages

getting higher = workers expected to remain in workforce for longer (lower wages, more youth unemployment)

1995: 60 for women, 65 for men
now: being increased to 68

school leaving age

low = not enough skills

high = labour supply too big, demand for training too big

england = school till 16, education till 18
ni/wales/scotland = school till 16

zero-hour contracts

good - can work for several employers

bad - no guaranteed work - can skew unemployment figures

2022: 1m workers on zero-hour contracts

temporary/flexible working

increase in part-time or work from home - meets the employee’s needs

lots to do with covid

gov intervention in labour market

max wage - below equilibrium, rarely used, CEOs

min wage - above equilibrium, often used (pictured)

who is the UK’s largest employer

the government

5.74m workers in 2022

results of this

monopsony power - price makers for wages

min wage - the gov increasing it means increasing their own wage bill

tension - priv and public beef if one’s wages increase and one doesn’t

tax - higher to pay for pay rises

application of the consequences of public sector employment

2022 strikes because of issues with public sector pay rises

2010-2015 frozen wages after the financial crisis
rampant inflation after - wages couldn’t keep up

define PED of labour

how responsive a firms demand for labour is to a change in the price of labour (wages)

elastic vs inelastic PED of labour

elastic/inelastic: change in wages = more/less than proportional change in labour demanded by firms

4 factors influencing PED of labour

labour costs - already higher = more elastic

factor substitution - can use machinery = more elastic

PED of g+s produced - more elastic = more elastic

time - less of it = more inelastic

define the PES of labour

responsiveness of the supply of labour (workers) to a change in the price of labour (wages)

elastic vs inelastic

elastic/inelastic: change in wages = more/less than proportional change in labour supply

factors affecting PES

skill - low = more elastic

training time - longer = more inelastic