3.5.3 Wage Determination in (Non) Competitive Markets

• Minimum Wages


  Monopsonists will attempt to keep wages very low thus the government introduced a national minimum wage above the equilibrium wage, but this creates an excess supply and disequilibrium
• Trade Unions


  A group of workers who collectively bargain to improve employee welfare such as the NUT (National Union of Teachers) or BMA (British Medical Association) gives them more power as they can take industrial action to force the government to settle on a deal.
• Maximum Wages


  The highest wage employers can hire an employee to reduce income inequality
• Occupational Immobility


  Workers lack the skills, experience or education needed to be employed which leads to structural unemployment
• Geographical Immobility


  When people are unwilling or unable to relocate for work due to community, expenses or time
• Factors Affecting Wage Elasticity of Demand


  • Labour costs as a percentage of total costs
  • Capital costs and ease of substitution
  • PED for the final product
  • Time
• Factors Affecting Wage Elasticity of Supply


  • Skills required e.g. a cashier vs an astronaut
  • Length of training period e.g. nurses, doctors
  • Time
  • Vocation (they receive a personal benefit for their labour)
• Label the curves and area

  A) Marginal cost of labour

  B) Average cost of labour

  C) Total wages

  
• Monopsony Labour Market


  In a monopsony labour market, there are three wage rates. W1 represents the competitive market wage as it is the equilibrium in the market. W2 is the MRP wage and represents a wage proportional to the revenue they attract to the firm. W3 is the monopsony wage as they are able to limit the wages in the market.

  
• Why are competitive wages higher than monopsony wages?


  In a competitive labour market, firms must offer high enough wages to attract skilled labour without incurring high labour costs whilst in a monopsony employees have no choice but to work for that firm.
• Solutions for Occupational Immobility


  • Widen the curriculum and change minimum pass grades
  • Increase the school-leaving age
  • Subsidise firms who offer apprenticeships/ internships
  • Provision of information on growing industries
  • Subsidise training camps for growing industries
• Solutions for Geographical Immobility


  • Introduce rent controls
  • Improve transport links
  • Provide subsidies to firms to offer relocation subsidies
  • Increase the supply of social housing
  • Provide subsidies to firms to provide travel grants or vehicles for workers
  • Expand help to buy scheme
• Current Labour Market Issues

  • Skills shortages
  • Young workers
  • Migration
  • Wage inequality
  • Zero-hour contracts
  • Retirement
  • The gig economy
  • Underemployment
• Gig Economy

  Low wages, poor working conditions and high uncertainty mean that the gig economy tends to be unsustainable and exploitative
• Wage Inequality


  The highest earners have experienced more wage growth than the lowest, leading to increased income equality. There is also inequality in growth for genders, industries, age groups and race.
• Retirement

  Pensioners account for over 50% of welfare spending which has caused the government to raise the retirement age to encourage people to save more and work longer to lower the cost
• Young workers 


  Young workers struggle to get jobs as firms are unwilling to let go of current workers and may experience lower lifetime earnings if they join the workforce during a recession
• Public Sector Wage Setting


  • Trade unions are weak so in the short-run the government can choose wages to benefit the budget
  • Between 2010 and 2015 public sector wages were frozen which put downward pressure on private sector wages as employees would not switch to lower paying jobs
  • In the long-run industrial action and workers moving to the private sector forces wages to rise to attract labour
• Monopoly Labour Market


  Trade unions act as the only sellers of labour so increase wages by reducing the supply of labour by increasing barriers to entry or refusing to work below a certain wage rate e.g. teachers' unions lobbied for all teachers to have a degree
• Government Intervention in Labour Markets


  • Min/ max wages
  • Legislation
  • Maximum working week
  • Education and training schemes