6. The Labour Market (AQA A Level Economics): Flashcards

The higher the proportion of labour costs to total costs, the more elastic the demand for labour will be.

In the short run, the demand for labour tends to be more price inelastic.

Commission is pay calculated as a percentage of the value of the transactions a worker completes, such as sales.

Piece rate pay is a fixed amount paid to a worker for each completed item they produce.

A salary is an agreed annual amount paid in equal instalments regardless of hours worked, whereas a wage is paid per hour worked.

True.

Fringe benefits are non-wage perks provided on top of normal pay and can strongly influence occupational choice.

The longer the length of training or education required for a job, the fewer people who seek employment in that occupation.

Non-monetary factors include job satisfaction and job security, as well as career prospects, status and work/life balance.

Job satisfaction is the fulfilment and enjoyment a worker gains from performing their job role.

There is a positive relationship between the wage rate and labour supplied, so a higher wage rate attracts more workers into the occupation.

True.

Because the supply curve is upward-sloping, a lower wage rate reduces the quantity of labour supplied.

The usual assumption is that as income tax rises, the supply of labour decreases.

Policies that raise the net migration rate increase the supply of labour to certain industries.

The market supply of labour is the total number of workers willing and able to work in an occupation at each wage rate.

A perfectly competitive labour market is one where the wage is set where the demand for labour equals the supply of labour, and all workers are assumed to have identical skills.

The equilibrium wage is set where the demand for labour equals the supply of labour (DL = SL).

An excess demand for labour causes a shortage of workers, which causes wages to increase.

False.

An excess supply of labour creates a surplus of workers, which pushes the wage rate down.

A wage taker is a firm that must accept the wage rate set by the industry because it has no power to influence the market wage.

It is perfectly elastic (horizontal), because the firm must pay the market wage to recruit any workers.

True.

Because the wage is constant, the supply curve equals both the average cost and the marginal cost of labour.

A firm in a perfectly competitive labour market employs workers up to the point where its demand for labour (MRP_L) equals the supply of labour.

Workers can move to other firms paying the market wage, so a firm offering less will struggle to recruit anyone.

The marginal cost of labour is the addition to a firm's total cost from employing one more unit of labour.

It assumes all workers possess identical skills and are paid the same wage rate.

True.

Labour markets are inherently imperfect, partly because of asymmetric information between workers and employers.

A monopsony occurs when there is a single buyer of labour in a market, giving the employer power to set the wage rate and level of employment.

The main imperfections are monopsony power, trade unions and imperfect information.

Imperfect information occurs when employers or workers lack full information about wages, skills or job opportunities, leading to poor decisions.

True.

By using its market power to set wages, a monopsonist can suppress wages below the competitive level and raise its profits.

The average cost of labour is the wage paid per worker, which forms the supply of labour curve facing a monopsonist.

To hire one extra worker the monopsonist must raise the wage for all workers, so the marginal cost of labour lies above the average cost of labour.

A monopsonist's profit-maximising level of employment occurs where the marginal cost of labour equals the marginal revenue product of labour.

False.

A monopsonist restricts employment, hiring fewer workers than a competitive market and at a lower wage.

The NHS is the main employer of doctors and nurses in the UK, giving it monopsony power to suppress wages.

A trade union is an organisation that represents workers in an industry and protects their interests through collective bargaining.

A monopsony labour market has only one buyer of labour.

A monopsonist sets both a lower wage and a lower level of employment than would occur in a competitive labour market.

Collective bargaining is the process by which a trade union negotiates with employers on behalf of its members over pay and conditions.

Higher unemployment weakens union power, because firms can more easily replace existing workers.

True.

The larger the union and the higher the share of workers who belong to it, the greater its collective bargaining power.

Higher firm profits tend to strengthen a trade union's demands for higher wages.

The wage rises above the market rate, but firms demand fewer workers, creating an excess supply of labour and unemployment.

True.

The higher wage raises the quantity of labour supplied but reduces the quantity demanded, creating an excess supply of labour.

Excess supply of labour exists when, at the going wage, the number of workers willing to work exceeds the number firms wish to employ.

A union can raise both the wage and the level of employment in a monopsony, because it counters the employer's power to suppress them.

In a monopsony a trade union can raise the wage without reducing employment, unlike in a perfectly competitive market.

Trade union bargaining power is a union's ability to influence the wages and employment levels its members receive.

False.

In a monopsony, a union can raise wages and employment together, so the effect depends on the market structure.

The lower the share of total costs made up by wages, the greater the union's bargaining power, as pay rises cost the firm relatively little.

The national minimum wage is a legally imposed wage level, set above the market rate, that employers must pay their workers.

Governments impose one to improve equity and prevent the exploitation of low-paid workers by guaranteeing a minimum income.

False.

A national minimum wage is set above the market equilibrium wage.

Excess supply of labour occurs when a minimum wage set above equilibrium raises the labour supplied but reduces the labour demanded, leaving surplus workers.

When a minimum wage is set above the market rate, the supply of labour increases.

Facing higher production costs, firms decrease their demand for labour.

False.

Many studies find unemployment does not rise, as higher wages can boost consumption and so the demand for labour.

It guarantees a minimum income for the lowest-paid workers and can raise consumption in the economy.

It raises firms' costs of production, which may lead to higher prices or, if prices cannot rise, to job losses.

At a minimum wage above equilibrium, the excess supply of labour creates potential unemployment.

Exploitation of workers occurs when employers pay workers less than a fair wage for their labour, which a minimum wage aims to prevent.

True.

The minimum wage per hour is often set at different levels depending on the worker's age.

Wage discrimination occurs when workers with comparable skills doing the same job are paid different wages.

Wage discrimination requires bias, information asymmetry and weak regulation or enforcement.

Information asymmetry occurs when employers hold more information about productivity, skills or qualifications than workers do.

True.

When agencies fail to regulate or enforce the law, employers may discriminate without fear of repercussions.

The gender pay gap is the difference in average earnings between men and women, usually expressed as a percentage of male earnings.

Occupational segregation means women are concentrated in lower-paid sectors while men dominate higher-paid fields.

Contributing factors include occupational segregation, a higher share of women in part-time work, and career interruptions from childcare.

The ethnic pay gap is the difference in average pay between workers from minority ethnic backgrounds and white workers.

False.

Ethnic minorities are under-represented in leadership roles, holding only a small share of UK leadership positions.

Discriminatory attitudes towards groups such as women or ethnic minorities can lead employers to pay them less for the same work.

A higher proportion of women work part-time, which tends to offer lower hourly rates and limited progression.

False.

It also reflects structural factors such as differences in industries, seniority, hours and unpaid care responsibilities.