Labour market ( microeconomics)

• The labour force is the number of people who are either employed or unemployed.
• The Labour Market is a market for a factor of production.
• In the Labour Market, there will be both demand and supply and where they are compatible there will be an equilibrium price of labour (wage).
• Firms demand and pay for labour to produce goods and services which they sell, this is known as derived demand.
• National news presenters should be paid more than local radio announcers because they provide a more valuable service.
• MRP stands for Material Requirements Planning.
• A firm's level of employment is determined in a perfectly competitive factor market by the intersection of its marginal revenue curve and its marginal cost curve.
• Employees provide labour services to firms in return for wages/salaries.
• The demand for a factor (labour in our case) is determined by technology and the marginal physical product that the factor produces, and the value of the product produced by that factor when sold.
• There is therefore a technological and a value side to the demand for labour, a change in either can shift the demand curve.
• Marginal productivity theory: a quick revisit (pages 95-96 in workbook)
• The marginal revenue product curve is the demand curve for labour.
• The demand curve for labour (MRP curve) slopes downwards.
• The higher the wage, the lower the demand for labour, as wage rates fall firms will demand more labour, this is an extension in demand.
• Shifts in the demand curve: a change in price of the product labour produces, a change in technology/productivity, a change in expectations of the market.
• If the price of one changes, I am likely to substitute more of one for the other, this is the substitution effect.
• Wage elasticity of supply of labour (WESL) depends on time, skills required for the occupation, length of training period, and vocational aspects of the occupation.
• Wage elasticity of demand for labour (WEDL) depends on time, substitutes for labour, and the product labour produces.
• Transfer earnings are the income an employee needs to receive to stay in their current employment, similar to normal profit.
• Each worker in theory has the choice between the number of hours they wish or need to work and the hours they wish to take in leisure.
• In choosing an occupation, individuals assess the net advantages of an occupation, which include monetary (wage/salary) and non-monetary (status, risk, nature of job, perks) variables.
• Differentials linked to different employment will have an effect on wages, these may be equilibrium differentials (aspects of a job like danger or responsibility) that do not change over time; or disequilibrium differentials, aspects which may have a temporary effect (specialised skills not widely available, innovatory nature of work) but which disappear over time.
• Economic rent is any income received by an employee due to particular advantages (skills, talents and other individual attainments).
• The functional distribution of income is the distribution of income between the various factors of production, both the demand and the supply of factors are needed for this.
• One key measure of the functional distribution of income is the proportion of national income going to wages and to profits.
• Economic rent can be a high proportion of someone’s income but it will often decline over time.
• Faced with a change in income, how many hours I want or need to work may change, a higher income may mean I can work less, this is the income effect.
• What determines the supply of labour: supply to an economy – demographics (age, gender, ethnicity, net migration), supply to an industry/firm: (level of employment, appropriate skills, training), supply of an individual: work/leisure choice (the opportunity cost of giving up an hour of work ( the wage) for an hour of leisure (the benefits derived from leisure).
• Perfect and imperfect labour markets are different types of markets for labour.
• A perfectly competitive market for labour operates under the assumptions of many small firms employing factors of production as price (wage) takers, homogeneous labour where all workers have the same level of skills, no trade unions or dominant employers (monopsonists), and the firm faces an infinitely elastic supply curve for labour at the going wage rate.
• Types of intervention include minimum and maximum price, nationalisation, and privatisation.
• Real value of the national minimum wage may be reduced by inflation.
• Arguments against the national minimum wage include potentially increasing costs and lowering competitiveness, tending to mean wages settle at the national living wage and not rise, and its impact on poverty may be too little.
• National minimum wage: an evaluation
• Arguments for the national minimum wage include reducing exploitation by ensuring workers are paid fairly, providing income to combat poverty, and being paid to all who qualify, affecting inequality.
• Imperfectly competitive labour markets can involve the intervention of trade unions on the supply side, monopsony (a single employer of labour on the demand side), or bilateral monopoly (a single employer facing a single trade union).
• A trade union is an organisation to further the interests of its members through pay and conditions, health and safety, pensions, and representation to government.
• The power a union has to negotiate better pay and conditions depends on the state of the economy, the state of demand for the product union members help to produce, and the militancy or perceived strength of the union.
• Trade unions can protect and negotiate employee terms and conditions, especially wages and hours, health and safety at work, pensions.
• Without unions to negotiate with firms, including MNCs, it would be difficult for individuals to bargain with employers, which is counter to monopsony.