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Content. The Demand for Labour, The Marginal Productivity TheoryInfluences upon the Supply of Labour to Different MarketsThe determination of relative wage rates in competitive marketsThe Influence of Trade Unions and Monopsonistic Employers in Determining Wages and Levels of EmploymentDiscrimin
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1. The Labour Market
2. Content The Demand for Labour, The Marginal Productivity Theory
Influences upon the Supply of Labour to Different Markets
The determination of relative wage rates in competitive markets
The Influence of Trade Unions and Monopsonistic Employers in Determining Wages and Levels of Employment
Discrimination in the Labour Market
The Distribution of Income and Wealth
3. The Demand for Labour Labour is one of the four factors of production
The labour market is where employers are able to find the employees they require
Demand for labour generally falls as wages increase – this is an inverse relationship
This is based on the assumption that all firms aim to maximise profits
4. Demand for Labour – Derived Demand Demand for labour is derived from the demand for products that labour makes and is therefore influenced by productivity
If the economy is in a boom there will be more demand for goods and services and therefore more demand for labour to produce them
If the economy is in a recession there will be less demand for goods and services and therefore less demand for the labour to produce them
5. The Marginal Productivity Theory Marginal revenue productivity of labour (MRPL) examines the change in revenue for a business resulting from the employment of an additional worker
This theory assumes:
All workers have the same abilities and productivity levels
Industry supply of labour is perfectly elastic
Trade unions don’t impact labour supply
Productivity of workers can be accurately measured
6. Productivity of Labour To calculate the productivity of labour:
Total Output / Quantity of factor
Productivity of labour influences the costs of a firm and therefore has an influence on their profits
It is sometimes difficult to measure productivity
7. Marginal Productivity of Labour According to this theory if a firm was to maximise profits they would continue to hire workers up to the point where MC of employing an extra worker = MR they produce
8. Influences upon the Supply of Labour to Different Markets Supply curve for labour slopes upwards – at higher wage rates more people will work
How many more people make themselves available at higher wage rates is influenced by elasticity of demand for labour
9. Influences on Labour Supply – Monetary Influences on labour are:
Financial:
Wage rates – the higher these are generally the greater the supply of labour
Overtime – if overtime is available it helps to increase supply
Wage rates in substitute jobs – if wage rates are higher than in substitute jobs more labour tends to be supplied
Barriers to entry – these can lead to a higher wage rate being paid
Opportunity cost of working
10. Influences on Labour Supply– Non monetary Increased mobility of labour – this could be occupational or geographical
Net labour migration – this is an increasing factor with more countries joining the EU and migrating to the UK to find jobs
Non monetary characteristics of jobs – these include factors that influence motivation such as working in a team, training and autonomy, employee benefits e.g. free gym membership, canteens on site and job security
11. Labour Supply of Specific Occupations The elasticity of the supply of labour for different occupations depends on a number of factors
Occupations where workers are highly specialised and have to undergo extensive training such as medicine and law are likely to have inelastic supply
Occupations where there are pools of labour with the skills and abilities to do the job tend to have elastic supply such as cleaners and assembly line workers
12. The determination of relative wage rates in competitive markets Wage rates are determined by the interaction of supply and demand
Additional workers are hired up to the point where the wages for that worker are equal to the extra revenue they generate
13. Differences in wage levels There are a number of factors which result in differences in wage rates in competitive markets these include:
Different skill levels – occupations which need higher levels of skill / academic qualifications generally pay more
Differences in labour productivity and revenue production – some workers are more efficient than others so produce more therefore they should earn more
14. Difference in wage levels Workers are often paid more if their job is risky or involves working antisocial hours
Trade unions can influence wage levels in some markets
Generally in markets where supply of labour is limited due to specific skills, qualifications or abilities than higher wages are demanded
15. Supply and Demand of Labour This model shows where S1 and D1 intersect the equilibrium wage rate is W2
If there are changes to the factors that influence supply or demand of labour causing the curves to shift equilibrium moves and the wage rate changes
16. Trade Unions Trade Unions work on behalf of workers through collective bargaining, their aims include:
Improve the pay of workers.
Improve working conditions and secure longer holidays.
Protect members' jobs.
Provide local, social and welfare facilities.
Influence government policy
17. The Influence of Trade Unionsand Monopsonistic Employersin Determining Wages andLevels of Employment The power of trade unions has decreased in the UK over recent decades due to laws, increased competition and the move towards a more flexible workforce
18. Unions and Wages Unions may try to use their collective bargaining power to get higher wages for members
For this to be effective then the union needs to have a degree of control over the labour force and therefore the total labour supply
The extent to which unions can impact wages depends on:
The level of unemployment
Competition
19. Unions and Wages If demand for labour is elastic then unions can force wages higher but quantity demanded will decrease
If demand for labour is inelastic than unions will be more effective at rising wage levels
Many markets that have unions have more elastic demand for labour therefore unions have less influence on wage rates
20. Monopsonistic Employers Monopsonistic markets are where the market is dominated by one buyer who is able to set the price for the whole market
If this is the case in the labour market than this one employer is able to set the wage rate
In these markets employers may pay workers at a rate below their marginal product
21. Discrimination in the LabourMarket There are a number of ways that discrimination can occur in the labour market
Equal opportunities - everyone has the same chances
Sex, Race, Age and Disability discrimination
UK legislation and European legislation tries to prevent discrimination
Businesses operate ‘Equal Opportunities Policies’-firm is committed to equality of opportunity for all
22. Discrimination in the Labour Market Discrimination occurs in the labour market for a number of reasons:
Employer ignorance
Occupational crowding effects – women and ethnic minorities may be most concentrated in lower paying jobs
The taste model (gary Becker) Becker proposed that people prefer to work with people of a similar ethnic background to themselves
23. Advantages of Equal Opportunity Policies Better workers as there is more competition in labour market (since more workers are available)
Increased flexibility where employers can benefit from flexible female labour (60% of women workers are P/T)
Wider skills and experience, otherwise unavailable
Discrimination is costly for businesses in court proceedings
Encourages better performance & higher morale, lower labour turnover and decreased recruitment costs.
Promotes a professional image and good PR
24. The Race Relations Act 1976 ‘A person discriminates against another if, on racial grounds, he treats another less favourably than he treats or would treat, another person.’
Makes it unlawful to discriminate lawfully or unlawfully on the grounds of race
25. Sex Discrimination Act 1975 ‘A person discriminates against a woman if, on the grounds of her sex, he treats her less favourably than he treats a man.’
This applies equally to men and women.
There are exceptions.
26. Disability Discrimination Act 1995 A disability is:
‘a physical or mental impairment which has a substantial and long term (at least 12 months) adverse effect on people’s ability to carry out normal day to day activities.’
Unlawful for employers to discriminate against a person in:
The recruitment process
Promotional opportunities
Dismissal
27. Equal Pay Act 1970 If an employee doing the same or ‘broadly similar’ work as the member of staff of the opposite sex is entitled to equal rates of pay and conditions
Aimed to eliminate discrimination in wages and other conditions of work – holidays, overtime, hours and duties.
28. Discrimination in the LabourMarket Despite legislation there still exists a gap between sexes in the UK
This gap can be seen in wage and salary levels
There have been a number of reasons suggested for this gap including:
Women are more likely to work part time then men
Employer discrimination favours men
Women spend less time travelling so have less choice of roles
Men tend to have a higher level of academic qualifications and work experience – especially if they are married
Women tend to work in different jobs which tend to be poorly paid e.g. catering, cleaning, clerical
29. Distribution of Income and Wealth Income looks at consumers annual inflows of money including salaries and wages
Wealth is the value of a consumers assets such as housing, savings and pensions
Large wealth disparities - In the UK 94% of wealth is owned by 50% of the population, the most wealthy 1% of the population have 23% of the wealth
30. Distribution Of Wealth And Income Income inequality also exists in the UK but this is not as marked as wealth inequality
The median UK household income in 2004 was Ł335.7, the 10th percentile was Ł171.1 and the 90th percentile was Ł673.9
This evidence shows that there are large differentials between the income of the poorest and richest households
31. Wealth And Income Distribution There are a number of factors which influence the distribution of wealth and income including:
Differences in pay rates in different jobs and industries
Unemployment
Changes to taxation
Changes to the benefits system
Falling relative incomes to those who depend on benefits
These factors result in income differentials
32. Income differences Income differences between households may also be related to social changes:
There has been a movement away from the nuclear family – two adults and children
There is a rise of single parents
There is an increase of two adults living together with no children and both working
These social changes may result in higher incomes per household for single cohabiting couples
33. Summary The Demand for Labour is influenced by how productive labour is
The Marginal Productivity Theory looks at how much an extra worker contributes to total revenue
Supply of labour is influenced by monetary and non monetary factors including wage rates, overtime, benefits and team working
Wage rates are determined by a number of factors including the skills and experience needed for the role
Trade unions can influence wage levels through collective bargaining however their influence is decreasing
Discrimination occurs in the Labour Market there have been laws to reduce this however there are still wage differentials between genders
The Distribution of Income and Wealth is uneven in the UK