Economics Lecture Notes

Factors of Production

• Four factors: land, labor, capital, and enterprise.
• Factor market arises due to derived demand (e.g., timber for furniture).

Land

• Definition: Anything provided by nature that aids production.
• Economic characteristics:
  • Fixed in supply.
  • Non-specific factor (can be used for various purposes).
  • Price doesn't affect quantity available.
  • Lacks geographical mobility.
  • Demand is derived.

Capital

• Definition: Man-made assets assisting in wealth production (e.g., machinery).
• Types:
  • Social (e.g., hospitals, roads).
  • Working (finished goods, raw materials).
  • Fixed (plant, equipment).
  • Private (computers, cars).
• Interest as payment for capital: Rewards savers for not spending.
• Marginal Efficiency of Capital (MEC): Extra profit from employing one more unit of capital.
  • Entrepreneurs invest where MEC is highest.
  • Higher interest rates reduce demand for capital.

Enterprise

• Organizes other factors to produce goods/services.
• Differs from other factors:
  • Can earn a loss.
  • Returns vary (supernormal profits to losses).
  • Return is residual (received after other factors are paid).

Labour

• Human activity directed towards wealth production; payment is wages.
• Economic rent: Excess earned above supply price.
• Factors influencing demand for labor:
  • Wage rate (lower wage, higher demand).
  • Demand for firm's output (high demand increases labor needs).
  • Price of other factors.
  • Government incentives (e.g., reduced employer PRSI).
  • Availability of new technology (may decrease labor demand).
  • Taxation levels.
  • State subsidies.
  • Entrepreneur's expectations.
• Marginal Revenue Productivity (MRP): Extra revenue from employing one more unit of labor.
  • Firms maximize profit when wage rate equals MRP.
  • MRP curve is the demand curve for labor; downward sloping.
• Labour Hoarding: Firms continue to employ labor even if unprofitable.
• Why MRP curve slopes downward:
  • Law of diminishing returns.
  • Law of demand.
• Factors influencing MRP:
  • Productivity of the factor.
  • Selling price of output.
• Marginal Physical Product (MPP): Extra output from one additional unit of a factor.

Labour Supply

• Total hours worked in the economy during a period.
• Factors influencing supply:
  • Size of population.
  • Wage levels.
  • Labour Force Participation rate.
  • Social attitudes (retirement age, school-leaving age).
  • Homemakers.
  • State of the economy.
  • Welfare benefits.
  • Level of income tax.
  • Number of hours worked.
  • Labour mobility.
  • Immigration levels.
• Labour supply curve is generally upward sloping.
• Equilibrium wage rate: Where demand and supply curves intersect.
• Minimum wage legislation: Governments enforce to tackle low pay.
  • Can lead to unemployment if set above equilibrium.

Advantages of Minimum Wage Increases

• Higher standard of living.
• Increased aggregate demand.
• Encourage employment.
• Wage rates may increase

Disadvantages of Minimum Wage Increases

• Higher labor costs.
• Loss of jobs.
• Higher selling prices.
• Increased risk of relocation.
• Wage drift and Ratchet economy
• Horizontal labour supply curve.

Taxes

• Taxes have a negative impact of the economy.

Mobility of Labour

• Mobility of labour is the ease with which workers can move from one region to another.
• Geographical mobility: Ability to move from one area to another.
• Occupational mobility: Ability to move from one job to another.
• Economic policies to increase:
  • Increased housing; Educational facilities; Social infrastructure; Government supports.

Productivity/Efficiency of Labour

• Factors affecting:
  • Training; Management expertise; Education; Innate talent; Availability of other factors; Living conditions.
• Ireland has high productivity due to a skilled workforce and presence of MNCs.
• Impact of rising productivity:
  • Increased incomes; Economic growth; Lower inflation.
• Wage differences due to skills, training, education, job conditions, and talent.

Labour Issues

• Labour Shortages are a situation where everyone who wants a job can find a job at existing wage rates. A
• Skill shortages: Demand exceeds supply; addressed by STEM investment, apprenticeships, immigration policies.
• Benefits of a skilled labor force: innovation, reduced recruitment costs, business growth.

Labour Market Case Study – Gender Pay Gap

• Gender Pay Gap is the difference in the average gross earnings of female and male employees due to inequalities that exist in the workplace such as:
• The over representation of women in low-paying jobs and the over representation of men in high-paying positions.
• Solutions include gender quotas, childcare support, family-friendly policies, mandatory reporting.

Labour Market Case Study – Challenges in the Irish labour market

• Challenges facing the Irish Labour Market is expanding and has become more robust overtime such as and Housing affordability, Youth unemployment and Underemployment.