labour markets

• The demand for labour shows

  how many workers an employer is willing and able to hire at a given wage at a given time period
• LED= 


  labour demand measures the responsiveness of demand when there's a change in the wage rate
• shift in labour demand

  • change in conditions of demand in the jobs market
  • rise in consumer demand
  • increase in productivity of labour- labour more costs efficient
  • subsidy - business employs workers
• Key factors affecting labour supply:

  • real wage rate
  • barriers to entry
  • net migration to labour
• The substitution effect


  A higher wage makes it more attractive to supply increases
• Income effect:


  higher wage workers achieve a target working fewer hours, easier to get money
• Labour markets:


  Marginal physical output of labour = amount of output produced by each extra worker
• MPP X MR=


  MRP ( marginal rev product of labour)
• Marginal revenue product theory:


  How much extra revenue labour can bring into a firm
• If wage Increases:


  more expensive for firms = decrease fewer workers
• Excess supply:


  when referring to labour = unemployment
• Substitues for labour

  • how easy it is to replace workers as wages go up

  Lots of Substitutes = elastic
• Percentage of TC:


  % THAT is made up by workers' wages, wages that have small% = inelastic
• LES

  • skills and qualification= less skills = elastic supply= unemployment
• LES


  employment is high labour supply= inelastic
• LES


  Productivity= more wood= profit or less demand for workers
• LES


  NON- percury benefits: membership, company car
• LES


  education, training and apprenticeships increase supply
• Monopsony 


  One buyer in the Market
• Example of monopsony 


  NHS: controls over 90% of the UK health care market
• Monoponsy:


  MC of L = MRP (profit maximisation)
• Monopsony:


  In a monopsony wages and employment are lower than perfect competition.
• National minimum wage=

  • Excess Supply/ Unemployment
  • Higher wages
• Trade unions 


  Group of workers that collectively bargain to make changes to the working environment
• Maximum price:

  • below E price
  • reduce inequality
  • gov reduce costs
  • lower wage/ labour shortages
• Occupation mobility:


  Gov intervenes with training, education and apprenticeships
• Geographical immobility:


  Can't move to new jobs gov intervenes with Transport/ Relocation subsides
• Wage differentials 


  difference in wage rate is due to economic costs
• Wage discrimination 


  CAGES
• Wage discrimination by age

  national minimum wage
• If firms discriminate (age)


  lower costs- maximise profit - increase employment - increase incomes
• Wage discrimination law


  Equal pay act
• Causes of pay differentials:

  • compensating wage differentials
  • reward for human capital
  • trade union
  • discrimination
• What technique does the Trade union use:

  collective bargaining
• How many members were there in the trade union in 2013?

  7 million
• Trade union aim

  • improving real living standards
  • improvements in working conditions
  • training and education
• Effect of trade union:

  unemployment = wage rate above equilibrium = bad for supply
• Effect of trade union

  Collective bargaining power= higher wages = cosh push inflation = worsen macroeconomic performance
• Labour market failure:


  failure to reach socially efficient/ equitable outcome
• Labour immobility:

  • disincentives to find work & take it
  • discrimination by workers
  • monopsony power of employers