Notesale: Turn your study into money

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3
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5
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It shows how many workers an
employer is willing and able to hire at a given wage rate in a given time
period
...
g
...

● Marginal product of labour = the change in output generated when an
additional worker is employed
...

● So workers have to increase revenue more than what they cost to the firm
...

Factors that influence demand for labour
● When the economy is growing, demand for labour increases and level of
employment in the economy increases (opposite if the economy is in a
recession, leading to less demand for goods and services so less demand for
labour so more unemployment)
...

● Business confidence and future expectations - a firm is more likely to take on
extra workers if they expect demand for their goods to rise soon
...
5
...

● Occupational labour supply = the number of people in an industry who are
willing and able to work, whereas individual labour supply is one person’s
willingness and ability to supply their labour
...

This is because, as wages rise, other workers enter this industry attracted by
the incentive of higher rewards
...

● Non-pecuniary benefits (e
...
leisure facilities or free breakfasts) may
contribute towards greater job satisfaction
...

Factors that influence the supply of labour
1
...
This is also called pecuniary benefits
...
Overtime: Opportunities to boost earnings come through overtime payments,
productivity-related pay schemes, and share option schemes
...
Level of taxation/welfare provision
...
Substitute occupations: The real wage rate on offer in competing jobs
affects the wage and earnings differential that exists between two or more
occupations
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5
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g
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6
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7
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8
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g
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A rising flow of people seeking work in the UK is making labour
migration an important factor in determining the supply of labour available to
many industries – be it to relieve shortages of skilled labour in the NHS or
education, or to meet the seasonal demand for workers in agriculture and the

construction industry
...
Changes in social trends (e
...
which is the most popular job for young
people)
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g
...

Market failure in labour markets
● Market failure can result from the geographical and occupational immobility of
labour
...

● Geographical immobility = when people cannot relocate to another place to
take up job opportunities (e
...
due to family or house prices)
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g
...

● Imperfect or asymmetric information between employers and employees
can also cause labour market failure, particularly if an employer doesn’t
recognise the benefit of an employee
and so underpays them
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g
...


3
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3 Wage determination in competitive and non-competitive labour markets
Labour market equilibrium

● If the wage rate is set too high, labour supply will be high but labour demand
will be low
...

● If the wage rate is set too low, labour demand will be high but labour supply
will be low
...

Current labour market issues
● Since the 1980s, there has been a decline in the UK’s manufacturing
industries which led to structural unemployment and hysteresis effects
...
More people
now work on zero hour contracts
...

● The government’s decision to force children to stay in education until they are
18 years old - more educated workforce in the future but smaller workforce
now
...


● Skills shortages, particularly in healthcare, persist due to the occupational
immobility of labour
...

● Net migration from the EU has led to a rise in the size of the workforce
...

● The UK state pension age is rising steadily, due to an ageing population
...

Government intervention in the labour market
Maximum and minimum wages
Maximum wages
● A maximum wage is a ceiling
wage set by the government,
above which it cannot rise
...

● A maximum wage is usually
set below the free market
price, leading to labour
shortages (or excess demand
for labour)
...

● A maximum wage that’s set above the free market equilibrium will have no
effect
...

● Costs - less motivated and less productive workers, potentially increased
emigration, some people argue it is unfair if people work hard
...
May be enforced through government legislation
...

● There will be excess supply of labour due to a contraction in demand for
labour (because fewer firms can afford to hire workers) but an expansion in

labour supply (because there's more of an incentive for workers to supply their
labour)
...

● Benefits - decreased poverty, more
incentive to work, may increase MRPL
and increases in morale and
productivity, many firms already pay
above minimum wage anyway
...

Public sector wage setting
● This is just a graph to show a cap on wages
...


Factors that determine elasticity of demand for labour = how much businesses
spend on labour as a proportion of their costs, ease and cost of factor substitution,
PED of the final product and the time period under consideration
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Factors that determine elasticity of supply for labour = this is affected by the
specific skills and educational requirements: the more complicated the skills and the
higher, or longer to achieve, the qualifications required, the more inelastic the supply
...

Underemployment = when a person is working but would like to work more hours
...




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