Economics- The Labour Market (Micro Unit 5)

Front 1

What is the Supply of Labour? Explain difference between Individual Supply and Market Supply (and shape of curves+axis)

Back 1

The amount of people willing to work (and supply their labour to firms)

Individual Supply= shows one individual's supply of labour, will be backward-sloping due to substitution + income effects.

Market Supply= upward-sloping due to increased wages attracting more workers.

X=Quantity of Labour, Y= Wage Rate

Front 2

What factors affect the supply of labour?

Back 2

Income Effect (as wages rise, income rises)-

+ As incomes rise we work more hours

- However, work less as we reach target income

Job Satisfaction (enjoyment of working)

Fringe Benefits- e.g. training, pension

Front 3

What factors affect Wage Elasticity of Supply?

Back 3

Unemployment Levels- Higher unemployment means people are desparate

Skill Level- Harder job mean inelastic supply as workers cannot do the job

Location (Geographical Mobility)

Front 4

How will Long-Run differ from Short-Run Supply of Labour?

Back 4

In the long-run, Supply of Labour becomes more elastic as workers are able to learn new skills, find new jobs and adjust to market demands.

Front 5

What is the Demand for Labour? What is the difference between the SR and LR in terms of shape? And why?

Back 5

Derived demand (depends on demand for goods/services) for workers by firms. Is equivalent to MRP.

In SR, land/capital etc are fixed so wage increases as Quantity of Labour demanded increases. Leads to slight 'n' shape (upside down Nike)

In LR, Demand is downward-sloping.

Front 6

What factors affect the Demand for labour?

Back 6

Demand for Product (due to derived demand)

Productivity of Workers (MRP)

Price of Product

Front 7

What factors affect the Elasticity of Demand for labour?

Back 7

Substitutes for Labour (e.g. price and productivity of robots/capital)

SR vs LR

Front 8

Economic Rent

Back 8

The amount of income earned by a worker that is greater than the minimum income they would work for (essentially consumer surplus for Workers)

Shown above Supply line but below Wage line.

Front 9

Transfer Earnings

Back 9

Minimum income needed to keep a factor of production in employment.

E.g. if a worker had a Transfer Earnings of £150, anything lower would cause them to leave.

Front 10

What is a Trade Union? Examples/stats?

Back 10

An organisation of workers that aim to protect workers by providing better wages + conditions through collective bargaining.

E.g. NASUWT, almost 50% of teachers in unions.

Front 11

What effect does a Trade Union have on a Competitive Labour Market?

Back 11

Pushes Wage up to WTU above equilibrium, leading to Real Wage Unemployment of Q3-Q2.

Front 12

Benefits of Trade Unions

Back 12

Higher Pay for workers

Improved Working Conditions

More protection for workers (less discrimination, more job security)

Front 13

Negatives of Trade Unions

Back 13

Can lead to higher unemployment (esp. for those not in the union)

Hold back productivity where capital could improve it (e.g. robots could be more efficient)

Waste time/money through Striking

Increase costs for firms, potentially pushing up prices/bankrupting (dep. on competitiveness of market)

Front 14

Evaluation of Trade Unions (how effective are they?)

Back 14

Depends upon:
Strength(density) of TU
Legislation against TU (e.g. Thatcher banning Closed Shops)

Productivity deals with employer

Type of Employer- Comp. vs Monopsony

Front 15

What is a Monopsony? Definition, characteristics, examples

Back 15

A market where there is a single buyer of labour.

Characteristics: Wage takers, look to maximise revenue per worker by employing at MRP=MC.

e.g. the Government employ all Teachers and Nurses

Front 16

How is the Monopsony Diagram drawn?

Back 16

Axis= Wage and Quantity of Labour

Draw Supply (ACL) and Demand (MRP) of Labour as normal.

MCL is steeper than ACL due to an extra workers wage also increasing other workers wages.

QM is where MC=MRP due to revenue maximisation, WM read from AC curve.

Compare to Competitive Equilibrium (S=D)

Front 17

How does a Monopsony's outcomes compare to a Competitive Labour Market?

Back 17

Employment and Wages will both be lower than equilibrium.

As MRP>Wage, workers provide more revenue to the firm than they receive in wages (e.g. teachers working more than they are paid for).

If MRP can be calculated, the strength of a Monopsony can be valued and assessed.

Front 18

What is a Bilateral Monopoly? Example/Stats UK

Back 18

When a monopsony firm (one buyer of labour) faces a monopoly seller of labour (Trade Union with high density of members).

E.g. 90% of teachers employed by state in UK

Over 50% of teachers belong to a union UK

Front 19

How is the Bilateral Monopoly Graph drawn?

Back 19

Start with Monopsony Graph (D=MRP, S=AC and MCL upward-sloping. WM and QM both below equilibrium.

Draw WTU between WM and WC, and continue it to S=AC. This becomes new S=AC and MCL.

Will be discontinuation of MC, so join vertically from Kink in S=AC.

QTU (from MC=MRP) is now higher than QM, and WTU is higher than WM

Front 20

Advantages of a Bilateral Monopoly

Back 20

Increased Wage and Employment, both moving closer to perfectly competitive levels.

Increased wage could lead to higher productivity, shifting D=MRP right.

Front 21

Disadvantages of a Bilateral Monopoly

Back 21

Negotiations can fail, leading to strikes and loss of productivity.

If the TU is not strong/dense enough, their demands will not be met.

If the TU is too strong/dense, the firm may have to yield-could lead to loss of profit/ exit market.