Interaction of labour markets

• What determines equilibrium wage rates in a competitive labour market?

  Meeting point of supply and demand curves
• Why are firms considered wage takers in a competitive labour market?

  Because supply is perfectly elastic
• What happens if firms set lower wages?

  Workers would not accept the wage
• What assumptions does the theory of labour markets make?

  Markets are flexible with perfect information
• At what point does a firm maximize profits in terms of labour employment?

  Where MRP of labour equals MC of labour
• What are wage differentials?

  Differences in wages for different skills
• What is an example of an unskilled job?

  Cleaner or retail assistant
• What is an example of a skilled job?

  Lawyer
• What is a monopsony employer?

  A single buyer of a type of labour
• How does a monopsonist employer affect wage rates?

  They have wage-setting power
• What is the profit-maximizing point for a monopsonist?

  Where MCL equals MRPL
• What is the impact of a monopsonist on the labour market?

  Lower wage rate and quantity of labour
• What is a trade union?

  A collection of workers bargaining collectively
• What does trade union density refer to?

  Percentage of industry workers in a union
• What factors affect the impact of trade union activity?

  Elasticity of demand for labour and TU density
• What is a bilateral monopoly?

  Single seller and buyer of labour
• What are some arguments for trade unions having a positive impact?

  Counterbalance monopsony and represent workers
• What are some arguments against trade unions?

  Unemployment and cost-push inflation
• What does labour market flexibility refer to?

  Response to external changes in the market
• What is occupational mobility of labour?

  Willingness to move between different occupations
• What is geographical mobility of labour?

  Willingness to move for new jobs
• What are government methods for increasing labour market flexibility?

  Better education and easier hiring processes
• What is human capital?

  Skills and educational attainment of workers
• What are nominal wages?

  Monetary amount of wages for a worker
• How are real wages calculated?

  Nominal wages minus inflation
• What is the working age population defined as?

  Everyone between 16 and 65
• What is the labour force?

  Everyone working or seeking work
• What is the dependency ratio?

  Percentage of dependents to working age population
• What is the replacement ratio?

  Gross income after retirement to before retirement
• What is the participation rate?

  Percentage of working or seeking work population
• How can trade union reform increase labour market flexibility?

  By reducing TU power in certain industries
• How does technology improve labour market flexibility?

  Enables remote working and distance employment
• What is the purpose of job training schemes?

  To build skills for specific jobs
• How does infrastructure improve geographical mobility?

  By enhancing public transport and internet access
• What laws can reduce labour market flexibility?

  Redundancy laws with financial penalties
• What can cause labour market failure?

  Inflexibility of the labour market
• What are some reasons for wage differentials?

  Differences in skills, productivity, and conditions
• How do trade unions and monopsonies affect wages?

  They can drive wages up or down