labour failure market causes 1.4

1. Demand Deficient/ disequalibrium or "Cyclical Unemployment"(macro) describe the effects of demand deficient and draw it

1. Demand deficient unemployment occurs when the economy is below full capacity. 2. For example, in a recession Aggregate Demand (AD) will fall leading to a decline in output and negative economic growth. 3. With a fall in output firms will employ less workers because they are producing less goods. Also some firms will go out of business leading to large scale redundancies. It is also practically the same as disequilibrium unemployment 4. In recessions, unemployment tends to rise rapidly as firms lay off workers.

what does unemployment show

1. Demonstrates labour markets are not clearing 2. The country is not producing at productive efficiency 3. Influence by how long people are out of work and how many

what are the different causes of unemployment

1. Hystrisis- 2. Frictional Unemployment: 3. structural unemployment 4. real wage unemployment 5. demand difficient 6. voluntary unemployment

describe unemployment

1. Hystrisis- unemployment causing unemployment, due to a decline in skills

Draw and describe the monopsonist labour market diagram

1. In a highly competitive labour market firms higher labour up to Q* or L*and pay up to W*, where MRP=AC 2. A monopolist will choose the profit maximizing quantity where their own MRP=MCL and higher Qm or Lm and pay Wm, using less labour and paying less wages

define 3 trade union methods

1. Limiting the labour supply to their workers (Closed shop) 2. Negotiating wages (Kinked supply) 3. Improving communication and legal services for their employers

draw a diagram for a bilateral monopoly

1. This is when a trade Union negotiates with a monopoly 2. The stronger the trade Union the closer the wage rate is to the upper limit (the trade union must take into consideration the effect on quantity employed) 3. The stronger the monopolist, the closer the wage is to the lower limit

describe real wage unemployment

1. This occurs when wages in a competitive labour market are pushed above the equilibrium, e.g. at W2 the supply of labor (Q3) is greater than the demand for labor (Q2). 2. Wages could be pushed above the equilibrium level by minimum wages or trades unions. This is sometimes known as "disequilibrium" unemployment 3. It can also be as a result of wage stickiness- this is because of labour market inflexibility 4. Demand for a good decrease, hence the MRP of the workers decreases 5. So the frim wants to move to a lower wage and employment level

5 effects of Occupation immobility

1. Wage differentials - as those on lower wages receive even lower wages due to their low revenue productivity 2. More vulnerable to unemployment 3. Unskilled Increasingly at a disadvantaged as jobs are requiring higher basic skill levels 4. For firms an inability to recruit skilled labor in sufficient quantities to prevent them from innovating and being more efficient 5. Prices may be higher creating allocative inefficiency

causes of labour market failure

1. monopsonist 2. bilateral monopoly 3. trade unions 4. imperfect information 5. skills shortages 6. economic inactivity 7. unemployment 8. discrimination 9. segmented labour markets 10. immobility

5 effects of discrimination

5 effects of discrimination 1. Group discriminated against receive lower wages and are more likely to be unemployed. The receive less training, may be in less demanding jobs then they are capable of, not get promoted. They may discourage from seeking high paid jobs with high qualifications 2. Producers- have a smaller pool of labour, so may have to employ less productive workers 3. Consumers- higher priced goods and less choice if they wont buy goods from a discriminated group 4. Government - must pay more to the discriminated group in benefits 5. Economy- suffers misallocation of resources and a decrease of output below potential output

describe and draw equilibrium unemployment

6. Equalibrium/ NAIRU The non- accelerating inflation rate of unemployment: the level of unemployment that exists when the market is in equilibrium

describe and draw a closed shop labour supply graph

Closed shop 1. The trade Unions such as the Equity the American Actors trade Union, makes it so that workers must be part of that Union. (outlawed in UK) 2. This creates artificial shortages and higher wages 3. This reduces allocative efficiency

5 Factors influencing a trade unions bargining strength

Factors influencing a trade unions bargaining strength 1. Greater financial reserves to spend in a dispute 2. Higher proportion of workers in the trade union 3. Lower degree of substitution below labour and capital 4. Low rate of unemployment, so you cannot change the workers 5. Higher support workers have from the public

5 factos influencing an employers bargaining strength

Factors influencing an employers bargining strength 1. Greater financial reserves to spend in a dispute 2. Lower proportion of workers in a trade union 3. Greater degree of substitution below labour and capital 4. High rate of unemployment, so you can change the workers 5. Lower support workers have from the public

3 points on imperfect information

Imperfect information 1. Workers may be in jobs which are unsuitable, MRP decreases 2. Unemployment may rise, as people are unaware of vacancies 3. Firms may choose not to invest in costly advertising to get the most productive people for a job. This is a cost benefit analysis

Information failure describe information failure 3 points

Information failure 1. Trade unions such as the BMA limit networking and training opportunities to their employees 2. Hence other workers are not aware of other jobs 3. The work force is not trained as efficiently

describe firms kinked labour supply graph

Kinked labour supply 1. The trade Union negotiate the wage increase W-W1 2. Quantity employed decreases Q1-Q2 3. There is unemployment Q2-Q3 4. The market becomes allocative inefficient 5. Firms cannot use wages a a signal of where business and jobs are growing the most

define Monoposonist- Oligopolist-

Monoposonist- a single buyer of labour e.g. NHS Oligopolist- one of few dominant buyers of labour e.g. Supermarkets

define Occupation immobility Geographical immobility-

Occupation immobility- barriers to workers changing occupations This can cause wage differential and structural unemployment Geographical immobility- barriers to the movement of worker between different areas

4 causes of structural unemployment

Occupational immobility. This refers to the difficulties in learning new skills applicable to a new industry, and technological change, e.g. an unemployed miner may struggle to find work in high tech industries. Geographical immobility. This refers to the difficulty in moving regions to get a job, e.g. there may be jobs in London, but it could be difficult to find suitable accommodation or schooling for their children. Technological change. If there is the development of labour saving technology in some industries, then there will be a fall in demand for labour. S tructural change in the economy. The decline of the coal mines due to a lack of competitiveness meant that many coal miners were unemployed, however they found it difficult to get jobs in new industries such as computers.

4 Problems of Monopsony in Labour Markets

Problems of Monopsony in Labour Markets 1. Monopsony can lead to lower wages for workers. This increases inequality in society. 2. Workers are paid less than their marginal revenue product. 3. Firms with monopsony power often have a degree of monopoly selling power. This enables them to make high profits at the expense of consumers and workers. 4. Firms with monopsony power may also care less about working conditions because workers don't have many alternatives to the main firm

3 points on profit maximisation for a monopsony

Profit Maximisation for a Monopsony 1. The marginal cost of employing one more worker will be higher than the average cost because to employ one extra worker the firm has to increase the wages of all workers. 2. To maximise the level of profit the firm employs Qm of workers where the Marginal cost of labour equals the Marginal Revenue Product MRP = D 3. In a competitive labour market, the firm would be a wage taker. If they tried to pay only Wm, workers would go to other firms willing to pay a higher wage. Hence, the monopsonist is a wage maker.

5 points on skills shortages

Skills shortages 1. Skill shortages occur when firms have difficulties recruiting people with the required skills, this is because they have to spend more on advertising, increasing their costs of production. 2. This can bid up wages for staff and lead to less productive staff to fill the vacancies 3. 1 tenth of UK adults have no qualifications 4. 3 million lack adequate numeracy and literacy skills 5. education and training is a merit good, with positive externalities. Hence, firms sometimes under consume it.

describe Frictional Unemployment:

This is unemployment caused by the time people take to move between jobs, e.g. graduates or people changing jobs. There will always be some frictional unemployment in an economy because information isn't perfect and it takes time to find work.

describe voluntary unemployment

This occurs when people choose to remain unemployed rather than take jobs available. For example, if benefits are generous, people may prefer to stay on benefits rather than get work. Frictional unemployment is also a type of voluntary unemployment as they are choosing to wait until they find a better job. For example to unemployment trap

define- Trade Unions-

Trade Unions- labour organisation that seek to promote the interests of their members through:

Trend in trade Unions membership, bargining in the Uk 5 effects of trade unions membership

Trend in trade Unions membership, bargining in the Uk The effects depend on the elasticity of the demand and supply of labour 1. Trade Union membership decreased by half a million between 1996 and 2004 2. Government 1980 legislations passed- unions were not recognised by many firms 3. membership of trade unions is normally professionals 4. decline in labour disputes 5. use to use collective bargaining, but is very expensive and difficult to organise

define Unemployment trap- Voluntary: Involuntary:

Unemployment trap- a situation when people choose to be unemployed because the level of unemployment benefit is high relative to the wage available in low paid occupations Voluntary: occurs when there are jobs available but the workers are not willing to fill them Involuntary: occurs when people are willing and able to work, but there is no demand for services (disequilibrium)

describe the effect of wage stickiness in three points

Wage stickiness Following a reduction in demand for labour, wages remain sticky with firms unwilling or unable to reduce wages 1. they don't want to create discontent among worker by reducing their wages 2. trade unions may not allow wages to go down 3. labour contract may deter the firms from reducing wages

3 causes of Occupation immobility

causes 1. Skills- This refers to the difficulties in learning new skills applicable to a new industry, and technological change, e.g. an unemployed miner may struggle to find work in high tech industries. 2. Qualification's- they may lack the qualification required for a job 3. Training is often not offered by firms, as they want to avoid the free rider problem

3 causes of geographical immobility

causes 1. Social reasons- e.g. not wanting to leave family or local schools 2. Economic reasons- This refers to the difficulty in moving regions to get a job, e.g. there may be jobs in London, but it could be difficult to find suitable accommodation or schooling for their children. 3. Information failure- e.g. finding out about jobs in different areas might be difficult

3 points on economic inactivity

economic inactivity 1. a decrease in the economically inactive increase LRAS and labour supply 2. some people class as economically inactive such as disabled or long-term sick can be capable at work. 3. These people are burden on tax payers, and if helped into work could increase LRAS, their esteem and income

3 effects of geographical immobility

effects • Geographical wage differentials • Surpluses of labour and shortages in others • A decrease in productivity

4 points on the effects of trade Union

effects of trade Union 1. Wage rate rise- increases standard of living for workers MRP increases. However, a rise can lead to firm only earning normal profit in the long run. So a rise in costs could lead to marginal firms leaving the market, output and employment falls. 2. Working patterns may change- this reduces market flexibility, but may improve reduce workers' turnover 3. Trade unions may secure training. This improves MRP 4. Labour information failure- workers may find themselves in jobs that are unsuitable for. MRP decreases.

two points on elasticity and how it effects this

elasticiity The more inelastic the demand is the more wages are effected by closed shop The more elastic the demand is the more quantity is effected by kinked supply

define labour market failure

labour market failure -occurs when the market force of demand a supply do not result in an efficient allocation of labour resources. Evidence:

3 negative effects of unemployment

negative effects of unemployment 1. A cost to the government as they must fund job seekers allowance 2. A cost to the government funding healthcare for depression, counselling and other services 3. Deflationary spiral or the multiplier effect- the decreasing LRAS, could lead to a decrease in consumption and therefore AD, so wages decrease further, output decreases. This was big in the 1980s

3 positives of trade unions

positives of trade unions 1. improved productivity- due to high incentives 2. increased labour market flexibility as workers are more secure 3. administrative costs saving to firms - trade unions offer services

describe segmented labour markets

segmented labour markets Some create barriers like qualifications or the Equity American Actors Trade Unions membership, preveting skilled workers entering a market. Yet sometime they help e.g. surgeons' qualifications make a more productive market

name 8 of the economic effects of labour market failures

the economic effects of labour market failures • Inflation- skill shortages limit the productive capacity of the economy, and those with higher skills command a higher wage ¥ Balance of payments- reduce firm's competiveness globally/ effects trade position • Inequality- skills shortages place a premium on those who ahev skills, so they can command a higher wage ¥ workers in the wrong jobs ¥ misallocation of resources increasing firm's costs/consumer surplus ¥ government costs- benefits, labour market legislation, education and training ¥ unemployment

2 theories of discrimination

theories of discrimination Becker's theory - some people would rather pay more not to employ or by products produced by discriminated groups Statistical discrimination- employers make generalisations on workers based on statistics to avoid the costs of employing workers who are less productive or skilled. E.g. old people

4 signs of labour market failure

• shortages of one form of labour and a surplus of another • workers being jobs they are not suited for • lack of training • wages being above/below market equilibrium