3.4 - the labour market

• What is derived demand?

  the demand for labour is dependent on demand for the final goods and services that the workers produce
• What is the demand for labour?

  The amount that firms are willing to pay for a certain amount of workers
• What are factors influencing the demand for labour?

  - level of consumer demand for the final product

  - productivity of labour

  - price of the product

  - cost of capital as a substitute for labour

  - wage rate relative to the price of capital
• What is the supply of labour?

  The number of workers willing and able to work at any given wage.
• What are factors influencing the supply of labour to a particular occupation?


  - size of the population

  - quality and content of education and training

  - income tax rates and out of work benefits

  - the strength of trade unions

  - government regulations

  - opportunity cost of leisure
• What are forms of market failure in the labour market?

  - geographical immobility of labour

  - occupational immobility of labour
• What are current labour market issues?

  - unemployment

  - ageing population

  - gig economy

  - zero-hour contracts

  - low productivity

  - artificial intelligence and robotic technology

  - discrimination
• How can the govt intervene in the labour market?

  Min/max wage
• What are advantages of minimum wage?

  - might prevent exploitation

  - might reduce poverty

  - might eliminate the unemployment trap where it is financially better not to go to work and rely on state benefits
• What are possible disadvantages of a minimum wage?

  - Might cause unemployment

  - might be inflationary if it leads to higher costs

  - might not reflect regional differences in the cost of living
• What are advantages of a maximum wage?

  - may reduce income equality

  - may prevent the top 1% of earners 'creaming off' the profits in the business

  - may allow higher wages to be earned by a wider group of workers
• What are disadvantages of maximum wages?

  - may lead to a shortage of of certain types of worker

  - can destroy incentives
• What is occupational immobility of labour?


  Obstacles that prevent workers form changing their type of occupation to find work
• What is geographical immobility of labour?


  Obstacles that prevent workers form moving from one area to another to find work
• What are measures to reduce occupational immobility of labour?

  - training and retraining schemes

  - apprenticeships

  - improvements in job information

  - reduce regulations, licensing or educational requirements
• What are measures to reduce geographical immobility of labour?

  - provision of affordable housing

  - subsidies towards removal expenses

  -improvements in transport
• What is price elasticity of demand for labour?

  How responsive the demand for labour will be to changes in wages.
• What are determinants for the elasticity of demand for labour?

  - labour costs as a proportion of the total costs of a business

  - price elasticity of demand for the final output produced by a business

  - the ease and cost of factor substitution

  - the time period under consideration
• What is the price elasticity of supply of labour?

  The responsiveness of labour supply to a change in the wage rate
• What are determinants of elasticity of supply of labour?

  - level of skill required for an occupation

  - level of educational qualifications required

  - ease of migration

  - time

  - degree of mobility of labour