Labour market shifts

• What are the reasons for shifts in labour supply and demand?

  derived demand, productivity, capital costs, migration, income tax and benefits, non pecuniary benefits, education and training
• how does derived demand work? give an example

  e.g if demand for houses increases, builders demand will increase and their wages will increase
• what is derived demand?

  Derived demand is demand for a factor of production (like labour) that is derived from the demand of another good/service.
• How does productivity shift the market labour demand? Evaluate this too!

  The increase in productivity means more of the good is produced leading to more profit and increases the demand for labour.

  However, if productivity increases firms may reduce their demand for labour as there can be a higher output from less workers
• how do capital costs affect labour demand and supply?

  capital and labour are substitutes. if the cost of capital decreases then demand for labour will shift left
• How does migration affect the labour market?

  The supply of labour for that country will shift left
• How does immigration of foreign workers into a country affect the labour market?

  Labour supply will shift right
• How do benefits being cut on affect the labour market for unskilled workers?

  labour supply shifts right because workers are incentivised to earn to support themselves
• How does an increase in income tax lead affect the labour market for high income, highly skilled workers?

  Supply of highly skilled workers may decrease because a higher tax reduces the income they keep for working. This reduces the incentive to work, decreasing the supply of labour.However, some workers need to earn a certain amount of income (e.g. to pay off their mortgage each month). The higher tax means they will now have to work more hours to earn the same income (after the tax), so labour supply could actually increase!
• what are non-pecuniary benefits?

  non monetary benefits other than the wage you are paid such as private healthcare, company holidays and free gym memberships
• How do an increase in non pecuniary benefits affect the labour market?

  labour supply or workers will increase to the right and decrease wages (workers incentivised by other benefits)
• How does education and training affect the labour market?

  labour supply will shift right.

  more productive workers mean that firms can make more profits increasing labour demand. However, labour demand can decrease because firms require less workers to produce a higher output