3.5 labour markets

• What does the demand curve for labour show?

  The quantity of labour that employers wish to hire at each possible wage rate

  
• What is derived demand in the context of labour?

  It is the demand for labour that arises from the demand for the products that labour produces
• Why do businesses only want to employ workers for as long as there is demand for their product?

  Because they aim to make a profit from selling the product
• What are the factors influencing the demand for labour?

  • Wage rates
  • Demand for the product
  • Prices of other factors of production
  • Wages in other countries
  • Technology
  • Regulation
• How do wage rates influence the demand for labour?

  As wage rates increase, demand for labour contracts
• What happens to the demand for labour if there is no demand for the product?

  There is no demand for labour
• How does an increase in the output or price of a good affect the demand for labour?

  It leads to an increase in demand for the labour that produces that good
• What effect does a decrease in the price of machinery and equipment have on the demand for labour?

  The demand for labour will fall as firms switch to using machinery
• How do wages in other countries affect demand for labour in the UK?

  If wages are lower in other countries, demand for labour in the UK decreases
• What impact does technology have on the demand for labour?

  Improvements in technology can lead to job losses but increase demand in tech-based industries
• What is the predicted percentage of jobs that could be lost to technology by 2040?

  About 47%
• How does regulation affect the demand for labour?

  High regulation can discourage firms from hiring, reducing demand for labour
• What is price elasticity of demand (PED) for labour?

  It is the responsiveness of the quantity demanded of labour to changes in the wage rate
• What factors affect the price elasticity of demand for labour?

  • Price elasticity of demand for the product
  • Proportion of wages to total cost of production
  • Availability of substitutes
  • Time
• How does the elasticity of demand for a product affect the demand for labour?

  If the product is elastic, a rise in wages will lead to a large impact on the quantity sold, reducing demand for labour

  
• What happens to demand for labour if wages are a large proportion of total production costs?

  There will be a large fall in demand for labour, making it elastic
• How do substitutes affect the demand for labour?

  If there are many substitutes, demand for labour will be elastic
• How does time affect the elasticity of demand for labour?

  In the long run, demand for labour is more elastic
• What does the supply of labour curve show?

  The ability and willingness of people to make themselves available to work at different wage rates

  
• What are the factors influencing the supply of labour?

  • Wages
  • Population and distribution of age
  • Non-monetary benefits
  • Education/training/qualification
  • Trade unions and barriers to entry
  • Wages and conditions of other jobs
  • Legislation
• How does the supply of labour curve behave in relation to wage increases?

  It is a backward bending curve, initially increasing hours worked but eventually decreasing

  
• How can firms increase the number of hours worked by their workforce?

  By increasing hours of existing workers or recruiting new workers
• What role does population play in the supply of labour?

  A high population increases the supply of labour
• How does age distribution affect the supply of labour?

  There needs to be many people of working age to ensure a large supply of labour
• How do non-monetary benefits influence the supply of labour?

  High job satisfaction and perks can increase the supply of labour
• How does education and training affect the supply of labour?

  More educated workers lead to a higher supply of workers
• How can trade unions restrict the supply of labour?

  By introducing barriers to entry, such as requiring specific qualifications
• How do wages and conditions of other jobs affect the supply of labour?

  If local jobs are unpleasant and low-paying, supply for alternatives will be higher
• How does legislation affect the supply of labour?

  Government rules, such as school leaving age and retirement age, can affect supply

  
• What is market failure in the labour market?

  • Labour market does not operate like a free market
  • An increase in wages should attract labour, but it may not
  • There can be excess supply in one area and excess demand in another
• What types of immobility can labour suffer from?

  Occupational and geographical immobility
• What is occupational immobility?

  It is when workers find it difficult to move from one job to another due to a lack of transferable skills
• What is geographical immobility?

  It is when workers find it difficult to move from one place to another due to costs or family reasons
• How can immobility lead to excess supply and demand in the labour market?

  Immobility can cause excess supply in one area and excess demand in another
• What is the estimated cost of the skills shortage in the UK following Brexit?

  £90bn a year
• What is the relationship between the level of qualifications and the elasticity of supply?

  A high level of qualifications makes the supply of labour inelastic
• How does the availability of suitable labour in other industries affect elasticity of supply?

  If suitable labour is available, the supply of labour will be more elastic

  
• How does time affect the elasticity of supply of labour?

  In the long run, the supply of labour will be more elastic

  
• What factors determine wage rates in competitive markets?

  Wages are determined purely by demand and supply
• What happens in a perfectly competitive labour market regarding wages?

  All workers are paid the same