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Labour Markets, Wages and Industrial Relations

Labour Markets, Wages and Industrial Relations. The UK Labour Market. Trends in the UK labour market sectoral shift from agriculture to manufacturing from manufacturing to services. Employment in different sectors of the UK economy. Employment in different sectors of the UK economy.

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Labour Markets, Wages and Industrial Relations

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  1. Labour Markets, Wages and Industrial Relations

  2. The UK Labour Market • Trends in the UK labour market • sectoral shift • from agriculture to manufacturing • from manufacturing to services

  3. Employment in different sectors of the UK economy

  4. Employment in different sectors of the UK economy

  5. Employment in different sectors of the UK economy

  6. Employment in different sectors of the UK economy

  7. Employment in different sectors of the UK economy

  8. The UK Labour Market • Trends in the UK labour market (cont.) • rise in part-time employment

  9. Full-time and part-time employment in the UK

  10. Full-time and part-time employment in the UK Total employment

  11. Full-time and part-time employment in the UK Total employment Full-time employment

  12. Full-time and part-time employment in the UK Total employment Full-time employment Part-time employment

  13. The UK Labour Market • Trends in the UK labour market (cont.) • rise in part-time employment • rise in female participation rates

  14. The UK Labour Market • Trends in the UK labour market (cont.) • rise in part-time employment • rise in female participation rates • rise in temporary employment

  15. The UK Labour Market • Trends in the UK labour market (cont.) • rise in part-time employment • rise in female participation rates • rise in temporary employment • effects of downsizing

  16. Market-determined Wage rates and Employment • Perfect labour markets • assumptions of a perfect labour markets • everyone is a wage taker • freedom of entry • perfect knowledge • homogeneous labour • determination of the market wage • horizontal supply curve to individual employers • horizontal demand curve for individual workers

  17. A labour market: whole market Sall workers in the market Dall firms in the market Wm Hourly wage O Labour hours

  18. A labour market: individual employer Dindividual employer Slabour Wm Hourly wage Q1 O Labour hours

  19. A labour market: individual worker Sindividual worker Dlabour Wm Hourly wage Q2 O Labour hours

  20. Market-determined Wage rates and Employment • The supply of labour • the supply of hours by an individual worker • marginal disutility of work • income and substitution effects of wage changes • the shape of the individual’s supply curve of labour

  21. The marginal disutility of hours worked MDU Disutility O Hours worked

  22. The supply of hours worked S Hourly wage O Hours worked

  23. Backward-bending supply curve of labour S WI Hourly wage O Hours

  24. Market-determined Wage rates and Employment • The supply of labour • the supply of hours by an individual worker • marginal disutility of work • income and substitution effects of wage changes • the shape of the individual’s supply curve of labour • the supply of labour to an individual employer

  25. Market-determined Wage rates and Employment • The supply of labour (cont.) • the market supply of a given type of labour • position of the curve • number of qualified people • non-wage benefits • desirability of alternative jobs • elasticity of the market supply of labour • the mobility of labour

  26. Market-determined Wage rates and Employment • The demand for labour: marginal productivity theory • the profit-maximising approach • measuring the marginal cost and revenue of labour • marginal cost of labour (MCL) • the marginal revenue product of labour (MRPL) • the profit-maximising level of employment

  27. Marginal physical product of labour curve MPPL x Diminishing returns set in here Output O Q of labour

  28. The profit-maximising level of employment MCL= W Wm MRPL = MPPL × Pgood MRPL £ Qe O Q of labour

  29. Market-determined Wage rates and Employment • The demand for labour: marginal productivity theory • the profit-maximising approach • measuring the marginal cost and revenue of labour • marginal cost of labour (MCL) • the marginal revenue product of labour (MRPL) • the profit-maximising level of employment • derivation of the firm's demand curve for labour

  30. Deriving the firm’s demand curve for labour a b c MRPL £ MCL1 W1 MCL2 W2 MCL3 W3 Profits maximised where MRPL = MCL O Q1 Q2 Q3 Q of labour

  31. Deriving the firm’s demand curve for labour a MCL1 W1 b MCL2 W2 c MCL3 W3 £ The MRPL curve traces out the demand curve D O Q1 Q2 Q3 Q of labour

  32. Market-determined Wage rates and Employment • Elasticity of demand for labour • determinants • price elasticity of demand for the good • ease of factor substitution • elasticity of supply of complementary factors • elasticity of supply of substitute factors • ratio of wage costs to total costs • time period • Wages and profits under perfect competition

  33. Wages and a firm's surplus over wages MRPL £ Surplus for firm MCL = W W Wages O Qe Q of labour

  34. Firms with Power in the Labour Market • Types of labour market power • monopsony power of employers • monopoly power of trade unions • Firms with monopsony power in employing labour • MCL > W

  35. MCL ACL º W (supply curve) MRPL Monopsony £ O Q of labour

  36. Firms with Power in the Labour Market • Types of labour market power • monopsony power of employers • monopoly power of trade unions • Firms with monopsony power in employing labour • MCL > W • effects on wages and employment

  37. Monopsony £ MCL ACL º W (supply curve) W2 W1 MRPL O Q1 Q2 Q of labour

  38. The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers • effects of wage increases on employment

  39. Monopoly union facing producers under perfect competition W1 £ S D O Q1 Q of labour

  40. Monopoly union facing producers under perfect competition Unemployment £ S W2 W1 D O Q2 Q1 Q3 Q of labour

  41. The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers • effects of wage increases on employment • productivity deals

  42. The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers • effects of wage increases on employment • productivity deals • Bilateral monopoly

  43. The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers • effects of wage increases on employment • productivity deals • Bilateral monopoly • no unique equilibrium

  44. The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers • effects of wage increases on employment • productivity deals • Bilateral monopoly • no unique equilibrium • relationship between wages and employment

  45. Bilateral monopoly S1 (=ACL1) MCL1 No union No union MRPL £ Monopsony: no union W1 O Q1 Q of labour

  46. Bilateral monopoly MCL1 No union MRPL £ S1 (=ACL1) x MCL2 = ACL2 W2 Bilateral monopoly No union W1 O Q3 Q1 Q of labour

  47. Bilateral monopoly MRPL £ MCL1 x MCL2 = ACL2 W2 Wage can rise to W2 with no fall in employment W1 O Q1 Q of labour

  48. The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers • effects of wage increases on employment • productivity deals • Bilateral monopoly • no unique equilibrium • relationship between wages and employment • how a rise in wage rates could lead to an increase in employment

  49. Bilateral monopoly MRPL £ MCL1 x W2 MCL3 = ACL3 W3 Wage can rise from W1to W3 and employment rises to Q2 W1 O Q2 Q1 Q of labour

  50. The Role of Trade Unions • Collective bargaining • union threats and promises • employers’ threats and promises • The outcome of negotiations • power • attitudes • union's membership • scope for movement • bargaining skills • information • Role of government

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