The Labour Market

What type of demand is labour?

A derived demand, the demand for labour is derived from the demand for the good which the labour is producing. Labour is also only demanded if profits can be increased by employing more workers.

What is the marginal productivity theory of the demand for labour?

The marginal physical product of labour (the additional units of total output brought about my employing one more worker (equal to marginal product)) determines/forms the demand curve for labour. The curve displays diminishing marginal returns (while initial the MPP increase (due to specialisation) diminishing marginal returns sets in and it begins to fall).

Define marginal revenue product of labour and state how it is calculated.

The money value of the addition to a firms total output brought about by employing one more worker. MRP=MPPxMR marginal revenue product of labour equals the marginal physical product multiplied by the marginal revenue.

What is the relationship between a firms marginal revenue product of labour, the firms marginal physical product of labour and the firms demand for labour.

In a perfectly competitive market, MR=AR=P is constant so the marginal revenue product of labour equals the marginal physical product of labour multiplied by the price.

What does the demand curve for labour show?

The relationship between the wage rate and the number of workers employed.

What is the difference between one firms marginal revenue product/ demand for labour and the whole markets demand for labour?

The markets demand for labour is the addition of all of the individual firms demand for labour (the horizontal sum of all the MRP of labour curves).

What are causes of shifts in demand for labour?

A change in labour productivity (higher productivity, higher demand due to higher MRP), changes in technology.

Define elasticity of demand for labour.

The proportionate change in demand for labour following a change in the wage rate. Calculated by doing the change in the quantity of labour demanded divided by the change in the wage rate.

What are the determinants of the elasticity of labour demand?

Inelastic due to: inelastic demand for the doos or service the labour is producing, wage costs are a low part of total production costs, low factor substitutability, in the short run rather than the long run.

How is the supply of labour to a particular occupation influenced?

Both monetary (wage rates) and non-monetary considerations (e.g job satisfaction, dissatisfaction and working conditions).

How do non-monetary considerations effect the supply of labour?

If a worker enjoys their job (due to non-monetary benefits), the worker would be willing to work for a money than the wage rate that would be considered acceptable if there were no satisfaction from the work itself (i.e if the job had no non-monetary benefits).

Explain the backward bending supply curve of labour. (Extra)

What are causes of shifts in the market supply curve for labour?

What is the economists model of wage determination in a perfectly competitive labour market?

What is the the role of market forces in determining relative wage rates?

What are the three causes of imperfection in a labour market?

Monopsony power, trade unions and imperfect information.

Define monopsony. Give an example of an employer with monopsony power.

There is only one buyer in the market. For example, the armed services and the NHS.

Explain how in a monopsony labour market the employer can use market power to reduce both the relative wage rate and the level of employment below those that would exist in a perfectly competitive labour market.

The monopsony wage rate is less than the marginal revenue product of labour. Due to this there is a deadweight loss (composed of a loss of welfare for companies and a loss of welfare for workers.

In a monopolistic market, what is the market supply curve equal to?

The average cost of labour curve. It represents the wage that has to be paid to all workers at each size of the labour force.

Explain the shape of a monopsony’s marginal cost of labour curve.

It is twice as steep as the average cost of labour curve as to attract each extra worker, the monopsony must raise the wage rate for all workers.

How is the wage rates and number of workers employed determined in a labour market with a monopolistic supplier? Explain the diagram.

The quantity of labour employed is determined by the point where the marginal revenue product of labour equals the marginal cost of labour whereas the wage rate is determined by the supply/AC of labour

Define a trade union.

A group of workers who join together to maintain and improve their conditions of employment, including their pay via collective bargaining. They are sometimes regarded as a monopoly supplier. J

What are the various factors that affect the ability of trade unions to influence wage rates and levels of employment in different labour markets?

Recently trade union power has been decreasing due to Employment Acts restricting the legal rights of trade unions and the impact of globalisation and international competition on British labour markets as well as deindustrialisation, privatisation and ballots. Union density, size of membership, political support, importance of worker in dispute, attitudes of rims.

What are the effects of introducing a trade union into a previously perfectly competitive labour market? (With diagram).

Lower levels of employment and higher levels on unemployment due to excess supply of labour at the new (higher) wage rate.

How do Keysian economists views differ from the usual economists conclusion on trade unions?

What are the effects of introducing a trade union to a monopsony labour market with a diagram.

Higher wage rates, a higher level of employment, lower or no deadweight loss.

How does imperfect information contribute to imperfections in a labour market?

Workers lack information on rates of pay in other labour markets as well as the ones they are supplying their labour in and employers may lack information on wage rates in other industries as well as potentially their own.

What are reasons for wages differences in imperfectly competitive labour markets?

Disequilibrium trading, occupational immobility of labour, geographical immobility of labour, discrimination.

What are the effects of a national minimum wage upon labour markets?

What are the advantages and disadvantages of a national minimum wage?

What are the conditions necessary for wage discrimination?

What is the impact of gender, ethnicity and other forms of discrimination on wages, levels and types of employment?

Give examples of real-world examples of wage discrimination.

Assess the advantages and disadvantages of wage discrimination for workers, employers and the economy as a whole.