Government Intervention in Labour Markets A government may intervene in the labour market to correct market failure and so raise efficiency, and also promote equity and social cohesion Government intervention affects wages in a number of ways: Employment of public...
Types of Labour Market Flexibility A flexible labour market is one that adjusts quickly and smoothly to changes in demand and supply Types of flexibility include: Numerical flexibility – the ability to change the number of workers, or ease of hiring and firing...
An Ageing Population Older workers have experience and tend to stay with existing employers and lose fewer days through illness. On the other hand, they tend to be less geographically and occupationally mobile and their skills may need to be updated DIY stores and...
Poverty Absolute Poverty People are said to be in absolute poverty when their income is insufficient for them to be able to afford adequate shelter, food and clothing In rich countries such as the UK, relatively few people are in situations of absolute poverty –...
Government Intervention to Affect Distribution Between Income and Wealth The extent to which a government intervenes to affect the distribution of income and wealth depends on: The extent to which it believe that the free market distribution would be inequitable The...
Migration The supply of labour for an economy is influenced by the net immigration If more people come into the country than leave, the labour force will increase in size This increase can: Overcome skill shortages Reduce the dependency ratio Increase government tax...
EU Directives These are instructions to member countries to achieve particular outcomes They usually allow member countries some flexibility in terms of the laws they draw up to achieve the desired result These directives often protect workers’ rights and may correct...
Measuring Inequality Wealth and income inequality can be measured in a number of ways The distribution of wealth owned or income earned by a given percentage can be compared It can also be compared in percentage groups, e.g. the bottom quartile shows the share of...
Wealth Wealth is a stock of assets that have a financial value There is marketable wealth and non-marketable wealth The former is wealth that can be transferred to another person, e.g. a house or shares The latter is specific to a person and cannot be transferred,...
Income Distribution Both income and wealth are distributed unevenly in the UK Wealth is more unevenly distributed While one can survive without owning any assets (e.g. renting a house), one couldn’t survive without any income Within an economy, distribution of income...
Other Causes of Labour Market Failure Attachment between workers and employment Some workers may stay in less paid jobs because they like working for their employers (transfer earnings?) This attachment reduces the mobility of labour and makes supply more inelastic It...
Immobility of Labour There are two kinds of immobility of labour Geographical immobility of labour is barriers to the movement of workers between different areas When this occurs, shortages of workers in one area and surpluses in others are not corrected, leading to...
Unemployment Unemployment means that labour markets aren’t clearing (S=D) Some of those willing and able to work cannot obtain a job This means that a country is not producing all that it’s capable of; it’s not producing on its PPC, and hence it won’t be achieving...
Discrimination Discrimination results in an inefficient allocation of resources and inequitable wage differentials The group that’s discriminated against are likely to be paid less for doing the same job, and are likely to find it harder to gain employment. They may...
Segmented Labour Markets There are barriers that exist to the free movement of workers between different sections of the labour market In reality, there are also a number of different labour markets If there were no barriers to entry of exit in labour markets, workers...
Economic Inactivity Most forms of economic inactivity are not labour market failure g. people looking after family and home have chosen to do so and are providing a key service, and a rise in the number of full-time students will likely help the economy in the long...
The Trends in Trade Union Membership in the UK The general trend is downwards This is thought to be because of the decline in union power, mainly due to Thatcher’s supply side policies Also because of firms not recognising unions, and hence the union does not have the...
The Economic Effects of Labour Market Failures Labour market failures can result unemployment, skill shortages, and workers in the wrong jobs This increases a firm’s costs of production and reduces consumer surplus On a macro scale, in reduces the firm’s international...
Trade Unions Trade Unions are labour organisations that seek to promote the interests of their members Their main function is to negotiate the wage rate and conditions of employment for their members Trade unions may also Serve as a channel for communication between...
Factors Influencing Trade Union’s Bargaining Power A trade union will be stronger: The greater the financial reserves of the organisation The higher the proportion of workers in the organisation The more inelastic the demand for the firm’s product The lower the degree...
Labour Market Failure Labour Market Failure occurs when supply and demand don’t result in an efficient allocation of labour resources This can be seen in instances where there is a either a surplus or a shortage of labour, as well as cases where workers are in the...
Forms of Bargaining Unions favour national collective bargaining, as this gives them greater power and enables them to take advantage of economies of scale in negotiations. It would be expensive for a union to negotiate separate agreements with a large number of...
The Determination of Wages and Employment For monopsonists and oligopsonists to employ more workers, they have to increase the wase rate . Bilateral Monopoly When a trade union negotiates with a monopsonists employer, the situation is referred to as a bilateral...
Factors Influencing an Employer’s Bargaining Strength An employer will be stronger: The greater the financial reserves it has with which it can last out any dispute The lower the proportion of its workers who are in a union or professional body The greater the degree...
Regulations, Standards and Legal Controls The government use other methods to correct market failure that doesn’t involve the direct use of the price mechanism These take the form of regulations, standards and legal controls All such controls are used by the...
Subsidies The purpose of a subsidy is to reduce the cost in order to provide a higher level of production or consumption than would exist if it was left to the free market Such payments are particularly relevant in the case of merit goods and where products generate...
Role of Government in Information Provision Seeing as information failure is one of the causes of market failure, it seems logical to expect governments to provide information in order to correct market failure This is mainly with respect to the provision of demerit...
Tradable Permits Tradable permits are a market-based means of correcting market failure The total number of permits is strictly controlled as a means of limiting the overall level of pollution The permits can be bought and sold at an agreed price between the owner and...
Taxation There’s a wide range of taxes implemented by central and local governments on firms and consumers in the UK Here are two main kinds of tax: Direct taxes, such as income tax and corporation tax Indirect taxes, such as VAT and excise duties The burden of...
Merit Goods and Demerit Goods Market can fail in the provision of merit goods and demerit goods Merit goods tend to have positive externalities associated with their consumption, while demerit goods can have negative externalities See examples table The problem...
What is meant by Market Failure? Where markets work efficiently, the market mechanism produces the best allocation of resources In reality, this doesn’t always happen, and in this case, market failure occurs It is therefore said that markets ‘fail’ Efficiency...
Information Failure The aforementioned definition of economic efficiency is fine in theory However, for it to work in practise, consumers would need to have accurate, up-to-date information on the quality and prices of products that they want to consume It is a lack...
Public Goods Public goods are consumed collectively It is difficult to charge for them directly, so they’re often financed via taxes If left to the free market, most public goods wouldn’t be provided Non excludability means that the good is provided for all...
Government Intervention to Correct Market Failure Governments intervene in the workings of the market mechanism to correct market failures Some ways are obvious, others are less so Governments use a variety of methods to correct market failure The extent and intensity...
Externalities See definition and ‘examples’ Costs and Benefits Economists are interested in externalities because of the various costs and benefits that arise out of the actions of others There are 3 types of costs and benefits: Private Costs and Private Benefits...