Draw the diagram and analysis for wage differentiation in the labour market
Relatively low wage jobs tend to have a highly elastic labour supply and an elastic demand curve at a low prevailing wage. Barriers to entry in these occupations are low. There is a large potential pool of people available to take these jobs without the employer having to significantly increase wages.
Relatively high wage jobs tend to habe a highly inelastic labour supply, this is because of the high barriers to enter such as required qualifications. They also have an inelastic demand curve since these higher skilled workers are important to the production process and add value to the output of goods and services, making firms less able to replace them with capital and machinery.
What is the impact of minimum wage?
(elasticity )
What is the impact of minimum wage?
(Productivity )
The increase in minimum effect may induce a psychological effect, whereby workers are motivated to work harder due to the increases in wage. Or perhaps employers may train existing workers to a greater intensity, increasing the overall productivity of labour, otherwise known as the efficiency wage effect.
Reducing excess of supply and being beneficial
What is the impact of inwards migration of labour ?
However, migrants can also cause a demand side effect. Eg: raising a family, increased spending on local. Propensity to consume…
What are the impacts on labour market of net outwards migration?
A fall in labour supply cause the wage rate to increase and employment to fall. This increase in wages then act as a barrier for firms to increase production. Furthermore, outwards migration can lead to labour shortages in particular sectors such as social care due to the lack of mobility of remaining workforce within the UK.
However, the effects overall depend on the elasticity of the labour
what is the impact of trade union bargaining power on employment market ?
When the labour demand curve is elastic, employers are highly wage sensitive. This means that even small increases in wages can lead employers to significantly reduce the quantity of labour demanded. As a result, trade unions often have relatively low bargaining power in such situations. If unionisation is relatively low, employers are more likely to find non-unionised workers who are willing to work for lower wages. This further weakens the unions’ ability to negotiate higher wages,
when the labour demand curve is inelastic, employers are not so wage senstitive, this may be becuase the workers add signiificant value to the production process and are not easily substitiuted by capital. As a result of this, unuions have high bargaining power and are able to negotaite higher wages. However, depending on the size of the wage increase, firms may find it cheaper to look at capital susbsitiitution that increase wages, causing supply to fall,
what are some current labour market issues/ facts within the UK
- due to Brexit there is a skilled labour shortage within construction, social care and construction
- unemploymebt rate was high after 2008 financial risis, covid and is now getting higher due to recession in 2024/ recently
- in response to shortage in labour there has been a huge increase in work visas granted to non EU and so a large inwards migration of labour
- AI and big data is mostly having a positive impact by making workers more produtive
what is public wage setting?
- Since trade unions in the UK are weak, in the short run, the government can
effectively make whatever wage decisions it decides in order to improve the
budget.
● Between 2010 and 2015, public sector workers experienced a pay freeze. This put
downward pressure on private sector wages since few people were likely to leave
the private sector for the public sector and private sector employers could use this as
evidence to limit pay rises for their workers.
● However, in the long run, if private sector workers receive pay rises and public
sector workers don’t, people will move from the public sector to the private sector and
this will force the government to increase public sector wages in order to expand
supply.
● As a result, the wages of public and private sector workers tend to rise by the same
percentage over a long period of time but in the short term they can rise by different
rates
