LABOUR MARKET

• Demand curve for labour


  Shows the quantity of labour that employers would wish to hire at each possible wage rate
• Derived demand


  Firms hire workers in order to produce goods to meet their aim, usually of making a profit. Therefore, the demand for labour is derived demand as it is derived from demand for the product the labour produces.
• Factors influencing demand for labour

  • Wage rates
  • Demand for the product
  • Prices of other factors of production
  • Wages in other countries
  • Technology
  • Regulation
• Price elasticity of demand for labour

  Responsiveness of the quantity demanded of labour to the wage rate
• Factors affecting 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
• Supply of labour curve

  Shows the ability and willingness of people to make themselves available to work at different wage rates
• Factors influencing 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
• Occupational immobility


  Workers find it difficult to move from one job to another because of a lack of transferable skills
• Geographical immobility


  Workers find it difficult to move from one place to another due to the cost of movement, family etc.
• The UK suffers from a severe skills shortage and this could cost £90bn a year following Brexit. There are four million too few high skilled people but six million too many low skilled people. Engineering is one industry suffering particularly badly from skills shortages.
• Elasticity of supply of labour

  Responsiveness of supply to a change in wage rates
• Factors affecting elasticity of supply of labour

  • Level of qualifications and training
  • Availability of suitable labour in other industries
  • Time
• Wage determination in perfect competition

  Wages are determined purely by demand and supply and all workers are paid the same
• Wage determination in monopsony


  Firm will determine how many workers to employ where the cost of employing them is equal to the value of that worker to the company, resulting in less people employed at a lower wage rate compared to perfect competition
• Wage determination with trade unions


  Trade unions can set barriers to entry to reduce supply or set a specific wage to create a kinked supply curve, resulting in higher wages but lower employment compared to perfect competition
• The government have been able to reduce the power of trade unions through acts which have introduced postal ballots, outlawed secondary picketing, restricted the size of the picket line and forced unions to provide 14 days' notice of action. The Trade Union Act 2016 was the most
• Trade union


  An organisation with members who are usually workers or employees, which protects the rights and pay of workers through a process of collective bargaining
• Ways trade unions could increase wages

  1. Set barriers of entry to reduce supply

  2. Set wages at a specific wage and ensure workers are not prepared to work for less, creating a kinked supply curve
• Trade unions increasing wages

  Causes a fall in employment from the perfectly competitive equilibrium
• Government actions to reduce trade union power

  • Introduced postal ballots
  • Outlawed secondary picketing
  • Restricted the size of the picket line
  • Forced unions to provide 14 days' notice of action
• The Trade Union Act 2016 included a clause saying that at least 50% of people must vote in the ballot, but the most recent teachers union ballot only had 28% voting turnout
• Bilateral monopoly


  It is possible for there to be both monopoly and monopsony in a labour market
• Wage setting in a bilateral monopoly

  1. The firm wants to employ at Q2W2

  2. The union may decide to set a minimum wage at W1 and ensure that there is no one willing to work below this price, creating a kinked supply curve

  3. The wage that is set will depend on the relative bargaining strength of both parties
• In times of economic recession and unemployment


  Unions may have less bargaining power and wage is most likely to be down at W1
• In times of full employment


  Unions may have the power to influence and wages could be at W3
• Unions can have a positive impact on both wages and the number of people employed: they are able to increase wages to W3 without negatively impacting the number of workers
• This increase in wages and employment is able to make the economy more efficient
• Labour market issues


  • Skills shortages
  • Young workers
  • Retirement
  • Wage inequality
  • Zero-hour contracts
  • The 'Gig economy'
  • Migration
• National Minimum Wage


  Introduced in April 1999 to raise people out of poverty and ensure decent minimum standards in the workplace
• Arguments for the national minimum wage

  • Reduces poverty
  • Reduces male/female wage differentials
  • Makes employees less likely to leave their job
  • Leads to a more content workforce
• Arguments against the national minimum wage

  • Potential loss of jobs
  • Raises costs for companies and may increase prices
  • Wage spiral
  • No consideration of regional differences
• The impact of any minimum wage will depend on where it is set, and whether this is above or below the current wage
• Maximum wages


  Some people suggest there should be a maximum wage for chief executives or a maximum pay ratio compared to the lowest wage earners
• Introduction of maximum wages

  Leads to excess demand within the industry as people may not put themselves forward for the job
• The impact of maximum wages depends on the elasticities of supply and demand: inelastic means there will be little impact
• Public sector wage setting

  1. In the short run, the government can effectively make whatever wage decisions it decides

  2. Between 2010 and 2015, public sector workers experienced a pay freeze, putting downward pressure on private sector wages

  3. In the long run, if private sector workers receive pay rises and public sector workers don't, people will move from the public sector to the private sector and this will force the government to increase public sector wages
• Government methods to improve geographical mobility of labour

  • Improve the supply of houses and reduce the price of properties
  • Improve transport links
  • Use national advertising
  • Introduce subsidies on houses, taxes etc. in areas where there are labour shortages
  • Move public agencies out of London
• Government methods to improve occupational mobility of labour

  • Increase vocational training
  • Encourage further study
  • Encourage greater spending on training within work
  • Target education at improving skills shortages and helping with job applications
• The government could also encourage flexible work patterns and reduce discrimination in the labour market