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49 Cards in this Set
- Front
- Back
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Define Specialisation |
Occurs when an individual, firm, region or country concentrates on the production of a limited range of goods and services. |
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Define the Division of Labour |
The process of splitting the production process into several individual operations and making each operation the special task of one worker. It involved specialising. |
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Who noted the productivity benefits from specialisation? What example can support this? |
Adam Smith. He observed a pin factory where the business of making pins is divided into distinct operations. The result was the production of thousands of pins per person compared to a few dozen if made individually. |
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Give 5 advantages of division of Labour |
- Increased Efficiency -Reduction in costs -Less training required -Higher pay for specialised workers -Capital Equipment used continuously |
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Give 5 disadvantages of division of Labour |
Loss of flexibility (e.g. If Staff are absent) Monotony Loss of skills Occupational immobility Over reliance on supply chain (interdependence production) |
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Why have some firms opted to move away from specialisation recently? What are they offering instead? |
Firms have opted to move away from specialisation due to the loss of job satisfaction. They’ve began to offer job enrichment to increase the span of the job role and the associated level of responsibility. |
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What does a labour market diagram look like? And what happens if the wages are set above or below the equilibrium? |
If wages are set above equilibrium there’s an excess supply of labour which can lead to unemployment, but if set below there’s an excess demand for labour which will lead to shortages in the labour force |
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What type of demand is labour? And why? |
Derived Demand as labour is demanded by firms to increase production. |
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Define Derived Demand |
The demand for a good or factor of production due to its use in making another good or providing a service. |
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Why is the labour demand curve downward sloping? |
The demand curve for labour is downward sloping due to the substitution effect where if workers become too expensive, firms will substitute them for capital. It is also downward sloping due to the income effect where firms can afford to hire more workers at lower wages. |
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What 4 factors will shift the labour demand curve? |
Demand for products Productivity of labour Cost of substitutes Subsidies and (Employers’) National Insurance |
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Explain how Demand for Products shifts the labour demand curve? |
As labour is derived demand it will increase as demand for products increases |
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Explain how Productivity of labour shifts the labour demand curve? |
If workers are more productive than capital, then firms will demand more workers. |
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Explain how the cost of substitutes (e.g. machines) shifts the labour demand curve? |
If the price of capital decrease then we would expect demand for labour to decrease. |
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Explain how Subsidies and National Insurance shifts the labour demand curve? |
Rises in employers national insurance contributions increase their costs, and therefore reduces demand. However, labour subsidies such as tax credits “top-up” worker’s wages and allow firms to pay lower wages. |
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Define Wage Elasticity of Demand stating what Elastic WED and Inelastic WED would imply |
The wage elasticity of demand measures how responsive firms are to a change in wages. Inelastic WED would mean that firms will continue to hire workers despite high wage. Elastic WED implies that even a small increase in wages could lead to workers being replaced by machines. |
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What four factors effect the elasticity of the labour demand curve? |
Substitutability of labour PED of Product Wages as a % of overall costs Time |
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How does Substitutability of labour affect the elasticity of the labour demand curve? |
Demand for skilled workers is likely to be more inelastic as they are hard replace with capital or unskilled workers |
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How does the PED of a product affect the elasticity of the labour demand curve? |
Labour is derived demand so if the PED of a product is inelastic (and hence sold for a high price) then the elasticity of demand for labour will also be inelastic (I.e. the firm can afford high wages) |
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How does Wages as a % of overall costs affect the elasticity of the labour demand curve? |
If wages are a small % of costs say 1% then an increase in wage rates will not have a big impact on total costs so demand is likely to be more inelastic than if it was a big % of the costs. |
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How does time affect the elasticity of the labour demand curve? |
In the long-run it is easier for firms to find substitutes by moving production overseas or developing overseas or developing new technology so demand becomes more elastic overtime. |
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What four factors will shift the labour supply curve? |
-Change in Participation Rate -Migration -Taxes and (Employee) National Insurance -Costs and Benefits of Substitutes |
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Explain how Change in Participation Rate will shift the labour supply curve |
Due to cultural changes there may be more people entering the labour market (e.g. less women staying home to look after children) |
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Explain how Migration will shift the labour supply curve |
Increase in immigration can increase the supply of labour. Emigration reduces this. |
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Explain how taxes and employee national insurance will shift the labour supply curve |
Increases in taxes or national insurance will reduce net income and reduce labour supply as people have less of an incentive to work. |
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Explain how Costs and Benefits of Substitutes will shift the labour supply curve |
If the costs and benefits of substitutes changes, one’s willingness to work will also change e.g. childcare, wages, other professions, benefit payments or the value of leisure time. |
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Define Wage Elasticity of supply and state what elastic WES and inelastic WES would imply |
Wage elasticity of supply measures how responsive workers are to a change in wages. Inelastic WES would mean that the number of available workers doesn’t change even if wages do. Elastic WES implies that even a small increase in wages could lead to a large increase in the supply of labour. |
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What 4 things affect the elasticity of labour supply curve? |
Mobility of Labour Amount of Spare Capacity Job desirability Time |
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What are the two types of Labour Immobility |
Occupational Immobility Geographical Immobility |
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Explain how Occupational Immobility can affect the elasticity of the labour supply curve |
If wage rates increase in Profession A but drop in Profession B then we would expect workers to switch from Profession B to Profession A. However, they may lack the skills needed to transfer to another profession. In the U.K. there are a substantial number of unfilled vacancies due to skills mismatch. |
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Explain how geographical immobility can affect the elasticity of the labour supply curve |
There may be unemployment in Newcastle but unfilled vacancies in London. However, workers from Newcastle may be unable to take these jobs due to transport costs, unaffordable housing or social reasons (not wanting to be far away from family) |
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Explain how the amount of spare capacity can affect the elasticity of the labour supply curve |
If an economy has low levels of unemployment then even a significant increase in wages may not lead to more workers. |
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Explain how Job Desirability can affect the elasticity of the labour supply curve |
Some jobs have significant non-monetary benefits (e.g. nurses, teaching) so workers are unlikely to be responsive to change in wages. |
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Explain how time can affect the elasticity of the labour supply curve |
In the long run more workers will be able to complete the training which will make supply more elastic. |
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What is the labour market like? |
Imperfect or non-competitive Market. When there is a single employer or buyer it can be a monopsony market (e.g NHS). When there is a single buyer and single seller it is a bilateral monopoly (e.g. with Trade Unions bargaining for minimum wage levels) |
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What three things is the success of a Trade Union dependent on? |
-Degree of Unionisation (the more Union members there are the more powerful the Union) - Profits of firms (Firms won’t pay high wages if they are making a loss) - Inelastic WED (otherwise workers are replaced with capital) |
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List the 9 ways the government may intervene in the labour market |
Changing Taxes and Benefits Subsidising Employers Subsiding housing Provision of Job Centres Provision Training Regulation Public Sector Wage Setting Maximum Wage Minimum Wage |
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What’s the impact of the government changing taxes and benefits on the labour market? |
Reducing taxes and benefits should lead to a reduction in the poverty trap and an increase in labour supply. |
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What’s the impact of the government subsiding employers on the labour market? |
Firms nay be willing to take on more staff if part of their wages are set by the government |
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What’s the impact of the government subsiding housing on the labour market? |
To improve geographical mobility of labour governments may help employees relocate. |
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What’s the impact of the government providing job centres on the labour market? |
These can be used to reduce search costs by matching job seekers with potential jobs |
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What’s the impact of the government providing training on the labour market? |
To improve occupational mobility of labour the government may provide training schemes help with applications or apprenticeships. |
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What’s the impact of the government regulating the labour market? Give some examples |
To stop abuse by monopoly employers governments may set regulation. E.g. safety standards, paid leave, maximum working hours |
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What’s the impact of the government setting public sector wages on the labour market? |
- As a major employer the government is responsible for setting the wages of large proportion of the UK’s labour force - The government may limit the pay that public sector workers can receive to limit government spending. - If public sector pay is set too high it could force private sector wages up. However continued pay freezes in the public sector could lead to shortages in key positions e.g. teachers |
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What’s the impact of the government implementing a maximum wage on the labour market? |
These have been used in the past to stop cost-push inflation caused by wage price spirals but are now proposed to reduce inequality as in (2016 average CEO pay in U.K. was 129 times larger than average wages) The format most commonly proposed is a maximum wage set as a ratio against the lowest paid worker in a business (say 1:100) E.g. If the lowest paid worker is paid £20k a year then the maximum the CEO could receive would be £2m per year. |
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What would a maximum wage diagram look like? Explain it. |
Excess demand between Q1 and Q2. No effect if above equilibrium Supply likely to be fairly inelastic. |
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What’s the impact of the government implementing a minimum wage on the labour market? |
To reduce levels of poverty and inequality the government can set a legal minimum pay below which employers cannot pay (called the National Living Wage in the U.K.) |
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Give 3 advantages of minimum wage |
-ensures workers aren’t exploited by monopoly employers and reduce inequality and relative poverty -higher wages may lead to higher efficiency (able to look after themselves better) -firms may invest more in their workers if they have to pay them a higher wage |
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Give 2 disadvantages of minimum wage |
- May create unemployment if set above labour market equilibrium (no effect if set below equilibrium) - may reduce competitiveness of U.K. exports or lead to more outsourcing/use of capital. |
