The Labour Market
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- Created by: Hannahpopplewell
- Created on: 07-10-18 14:22
What is demand for labour?
For any given wage rate, a firm must decide how many workers it would be willing to employ.
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What does the demand curve for labour show?
How many workers will be hired at any given wage rate over a particular time period.
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What is the wage rate?
The price of labour.
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What does it mean if wages are high?
Workers are expensive for firms so fewer are employed.
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What does it mean if wages are low?
Labour becomes relatively cheap compared to using other factors of production so more workers are hired.
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What are conditions of demand?
Changes in wage rate in and industry will cause a contraction or extension in the demand for labour.
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What is derived demand?
Demand for workers depends upon the final output that is produced.
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What does it mean by labour is a derived demand?
As the demand for the firms output increases, the demand for labour to produce this output also increases.
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What happens to the demand for labour when the economy is growing?
It increases and so the level of employment in an economy rises.
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What happens to labour if the level of economic output falls?
There would be a decrease in the demand for goods and services , a decline in the demand for labour, resulting in unemployment.
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What happens is there is less demand for a firms product?
The demand for labour in that industry will fall.
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What is labour productivity?
The output per worker per hour.
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What happens when workers become more productive?
The demand for labour increases and so does their ability to demand higher wages.
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What does it mean if a worker is more productive?
The more productive a worker is, the more valuable they are to a producer and the more firms are willing to pay for them.
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What is an alternative to labour?
Machinery (capital goods).
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What happens to labour if capital goods become cheaper?
Firms may switch to producing in a capital-intensive way, instead of using human employees, reducing the demand for labour.
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What happens if capital goods become more expensive?
Firms might switch to a more labour-intensive method of production, increasing demand for labour.
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What happens to labour and capital in the developed world?
Labour is relatively expensive so capital intensive techniques of production are chosen.
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What happens to labour and capital in the developing world?
More worker are employed with fewer machines than in the developed world.
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Why might a decrease in the price of capital goods might not mean employing fewer people?
Workers being in fixed contracts may mean that firms can't just switch them out for machinery straight away, there may be a time lag.
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What is elasticity of demand for labour?
It refers to how responsive the demand for labour will be to changes in wages.
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What happens if demand for labour is elastic?
Businesses cut back on employment if wage rates increase and will expand rapidly when labour becomes cheaper.
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How is the elasticity of demand for labour calculated?
% change in quantity of labour demanded/ % change in wage rate.
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What does the wage elasticity of demand depend on?
The proportion of labour costs in the total costs of a business, The ease and cost of a factor substitution, The time period under consideration and The price elasticity of demand for the final output produced by a business.
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What happens if wage costs account for a small proportion of total costs?
Firms are much more likely to continue to employ the same number of workers in the face of rising wages. It will not be a significant cost to them and will not affect the profits greatly.
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What happens if labour costs account for a large proportion of total costs?
In the labour intensive service industry, firms will have far more elastic demand for labour.
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Why is it difficult to transfer production from being labour intensive to capital intensive?
Firms will have inelastic demand for labour as there are few substitute methods of production. E.g doctors.
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What does it mean if you can replace human workers with machines easily?
Labour might be more elastic.
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What does the increase in technological advances mean for labour?
It increases the number and types of jobs which can now be replaced by capital goods.
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What is a problem of switching human labour to capital?
The process could be expensive and time consuming which could be enough to put firms off switching production methods.
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Why does switching to substitute methods of production take time?
Contracts take time to get out of, takes time to install the capital and takes time to train workers for new methods.
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What is demand for labour likely to be in the short term?
Inelastic.
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What is demand for labour likely to be in the long term?
Firms have more options so demand is elastic.
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Why if wages rise will firms continue to hire a similar number of workers if the demand for the final product is inelastic?
A significant amount of the cost rise can be passed onto the customers and firms profits will be largely unaffected.
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What is the workforce?
Employed and unemployed.
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What is the participation rate?
The percentage of the population of working age who are the workforce.
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How is the participation rate calculated?
Size of the workforce/Population of working age x100.
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How might the size of the workforce be affected?
Migration, demographic changes, the participation rate.
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Why is the participation rate likely to increase if there are high incentives to work?
High wages available, unemployment benefits low, income tax rates low.
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Why is the participation rate likely to increase if the economy is doing well?
More jobs so prevents discourages workers.
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Why is the participation rate likely to increase due to social trends?
Social attitudes may change, for example regarding women in the workplace which could mean more people want to work.
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Why is the participation rate likely to increase due to government policy?
It could be due to the school leaving age or retirement age.
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What is the supply of labour?
The number of workers willing and able to work in a particular occupation or industry for a given age.
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What will happen to the supply of labour in the short run?
There my be insufficient time for individuals to change occupation. In this time period a key influence on the supply of labour is changes in the wag rate on offer. A higher wage rate may attract underemployed workers to work more hours.
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What happens when the wages rise?
It increases the return from working and increases the opportunity cost of leisure time, so the worker selects to work more hours.
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What is the substitution effect?
Swapping your leisure time to work more hours.
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What is the income effect?
The target income has now been met so people can afford to work less hours.
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What influences the supply of labour in given occupations?
Skills and qualifications, financial rewards of the job, presence of trade unions, migration of worker with specific skills and non-financial rewards of a job.
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What are pecuniary benefits?
Financial rewards of a job like wages and bonuses.
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What are non-pecuniary benefits?
Non-financial rewards of a job, such as convenience, flexibility, status, location, job security.
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What is elasticity of supply of labour?
Measures responsiveness of labour supply of a change in the wage rate.
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How is elasticity of supply of labour calculated?
% change in quantity of labour supplied/ % change in the wage rate.
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What is labour supply in low skilled jobs?
Elastic
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Why is labour supply elastic in low skilled jobs?
Because a large pool of labour is available to take the job.
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What makes labour occupationally mobile in low skilled jobs?
Many people in other industries may have transferable skills which would be applicable elsewhere.
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What is the labour supplied in higher skilled jobs?
Inelastic.
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Why is the supply of labour inelastic in higher skilled jobs?
Because it is hard to expand the workforce in a short period of time,
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What makes labour occupationally immobile in higher skilled jobs?
Training workers may take a long time.
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What will make the supply of labour more elastic?
A pool of workers with the relevant skills who are willing and able to work in a specific industry.
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What will happen to the supply of labour if wages start to rise?
More people may be willing to supply their labour.
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What is geographical immobility of labour?
A situation where workers are unable to move to different places to seek and find work.
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Why might there be geographical immobility of labour?
Social reason (family commitments), travel cost and time (poor transportation links), living costs (house prices).
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What will happen to the supply of labour if it is geographically mobile?
It will be more elastic.
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Why will there not be a big response to a change in wage rate for jobs with high non-pecuniary benefits
Because the reasons for doing the job are not focused on the financial gain, they could be a 'calling'.
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Why is the supply of labour more inelastic the shorter the time period?
Because it takes time for workers to find out about job opportunities in other industries, restrain staff and conduct the administration associated with hiring an employee.
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Why is the supply of labour more elastic in the long term?
Workers can be retrained or allowed to immigrate.
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How is the wage rate determined in a competitive market?
By the industry, so demand for labour is equal to supply.
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What is the wage determination influenced by?
The level of demand for labour and the elasticity of demand for labour as well as the supply of labour and the elasticity of supply of labour.
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What is market failure in the labour market?
This occurs when the price mechanism causes an inefficient allocation of resources and so leads to a net welfare loss. Consequently, resources are not allocated to their best or optimum use.
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What can the government do about geographical immobility of labour?
Help workers to move where the jobs are (state provision of housing, relocation grants for workers, housing market reforms) or move the jobs to where the workers are (move public sector jobs out of London).
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How could state provision of housing help geographical immobility?
By improving quality and quantity of rented accommodation in employment hot spots, set amount of properties reserved for key workers.
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How could relocation grants for workers help geographical immobility?
The government could subsidise the cost of workers moving house.
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How could housing market reforms help geographical immobility?
By using policies which aim to improve the supply of rented accommodation and discourage properties to be sat empty (providing more housing).
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How could transport help geographical immobility?
Improving transport links could mean people could get jobs further away from where they live.
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How could moving public sector jobs out of London help geographical immobility?
It would make it easier for workers to access these jobs.
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How could encouraging firms to start up or move to places where unemployment is high help geographical immobility?
If businesses are given grants to start up where unemployment is high then this will create more job opportunities and will give people who are unemployed because of not being able to move to somewhere else for a job, a chance to work.
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What is occupational immobility of labour?
A situation where workers are unable to change jobs or take up new opportunities, due to a lack of skills or training.
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Why have many people in the UK found that their skills are no longer required?
Because the UK have made structural changes, moving away from manufacturing to a more service based economy.
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What skills to most jobs require?
Some jobs only require general work skills which can be transferred, however most jobs require particular knowledge and personal qualities.
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What happens to workers jobs in the short term in regards to their skills?
It is very difficult for them to transfer from one occupation to another, in some cases its impossible.
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What happens to workers jobs in the long term in regards to their skills?
It is easier to transfer from one occupation to another however retraining costs can be very high.
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What can the government do about occupational immobility?
Improve education and training to increase the functional flexibility of workers, directly provide specific training for workers to target skills shortages in the economy, subsidise training schemes done by employers themselves, job vacancies
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Why might a business be more reluctant to invest in staff training compared to investing in capital goods?
If firms pay for the training of a worker other firms can just poach that worker and then they won't get back what they have paid for, capital is quicker to set up, capital is an investment so you could get your money back by selling it.
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What is public sector wage setting?
The government may own certain businesses, either because they could not survive without significant state funding or because the government wishes to determine the direction the business takes so the government have a lot of influence on their wages
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What is a monopsonist?
A sole buyer of a resource.
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What will in the impact of low wages in the public sector have on private sector pay in the short term?
The private sector workers are less likely to ask for a wage increase.
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What might the impact of low public sector wages have on the labour market in the private sector in the long term?
People will be incentivised to join the private sector.
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Why is skill shortages a problem in the current labour market?
There are skill shortages in London and the IT industry as well as worker being unemployed or underemployed because they don't have the right skills. People could also have the right skills but are geographically immobile.
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How are young workers affected in the labour market when there is a recession?
In recessions employers tend to keep their existing employees and not hire new ones, some people may have had to take a job below the level that might be expected of their qualifications.
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What is hysteresis , in regards to young workers?
If young workers haven't had a job and/or haven't been gaining skills through school so they wouldn't be able to get a job as easily.
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What does it mean if young people do further studies like college or university?
On average, the higher the qualifications of an individual, the higher is likely to be their lifetime earnings and the less likely they are to be unemployed.
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What has happened over time to the level of education required?
It has risen, even to do low skilled jobs. E.g a picker in a supermarket needs to be literate.
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Why is it important for the government to ensure schools and universities are continuing to raise standards?
Because education and training makes workers more productive.
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What is the problem with rising retirement ages?
It is beneficial for the economy as more people are working for longer however if people can't do the job that they have at an older age then it isn't very productive.
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What are the advantages of a temporary/zero hour contract?
Flexible, responds to demand, lowers costs so lowers prices making firms more internationally competitive.
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What are the disadvantages of a temporary/zero hour contract?
No protection against unfair dismissal, no set hours, no security.
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What does immigration do for firms?
Allows them to recruit from a larger pool of workers.
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What advantages does immigration have to an economy?
Closes up skills gaps that people from other countries may have that people in the UK don't, more people getting paid means more spending in the economy.
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What is a maximum wage?
A legal maximum wage rate which employers can pay their workers.
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What is an advantage for using maximum wages?
Its an attempt to close up the gap between the lower paid workers and higher paid workers.
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What is a disadvantage of using maximum wages?
It could reduce the the incentives to supply labour and lead to a shortage in jobs such as CEOs if there are other well paid occupations they could switch to.
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What is a minimum wage?
A legal minimum wage rate per hour which employers must pay their workers.
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Why is having a minimum wage a good thing?
It provides and incentive to workers to participate in the labour force rather than claiming benefits.
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What could having a minimum wage mean for workers?
Firms may invest in capital meaning they could employ less worker and have capital for the same price.
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How is maximum wage shown on a graph?
There is excess demand.
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How is minimum wage shown on a graph?
There is excess supply.
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Other cards in this set
Card 2
Front
What does the demand curve for labour show?
Back
How many workers will be hired at any given wage rate over a particular time period.
Card 3
Front
What is the wage rate?
Back
Card 4
Front
What does it mean if wages are high?
Back
Card 5
Front
What does it mean if wages are low?
Back
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