Summary
Summary Varsity College BCOM Year 1 Economics Ch 12
- Course
- Institution
- Book
Varsity College BCOM Year 1 Economics Ch 12
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Varsity College BCOM Year 1 Economics Ch 11
-
Varsity College BCOM Year 1 Economics Ch 10
-
Varsity College BCOM Year 1 Economics Ch 9
Seller
Follow
jennamortonx
Content preview
PMIC – Economics Ch 12Ch 12 – The Factor Markets: The Labor
Market
12.1 Introduction
Labor market = most important factor market in the
economy.
Cost of labour is the largest cost factor in the economy. ∴
changes in the cost of labour have a big impact on cost
and price trends in the economy.
Cost of labour depends on:
- Wages and salaries paid to workers
- Productivity of labour.
- Quality of labour
o High wages and salaries + low productivity
= labour cost per unit of output increases
o Cost levels are unaffected if productivity
rises to the same extent as wages and salaries.
Wages and salaries = important demand factor in the economy, they are the main
source of household income and the therefore influence the demand for g/s.
12.2 Labour Market vs The Goods Market
Labour market is a link between potential sellers and potential purchasers.
- Workers have to be physically present when their services are used ∴ non-
monetary factors are more important inn labour markets than in markets for other
fops.
- Labour services are not transferable to others. Goods are fully transferable
- Labour is always rented rather than sold.
- Functioning of a labour market can be effected by a lots of non-economic
considerations
- Labour markets are characterised by trade unions, employees associations,
collective bargaining and gov intervention.
- Labour is usually employed by means of long-term contracts ∴ labour is not
traded at the best price on a daily basis
- Labour is heterogenous and cannot be classified of standardised like goods
- Labour market is described as a segmented market (variety of labour markets),
each segment has its own characteristics. There can simultaneously be a shortage
of labour is a certain segment and an oversupply in another
- Remuneration of labour does not consist only of its price, it may include non-wage
benefits
- Remuneration of labour is affected by a number of factors that are not directly
related to labour market conditions
1
, PMIC – Economics Ch 12
BASIC CONCEPTS RELATING TO THE REMUNERATION OF LABOUR
Wage = basic payment for labour, excluding benefits or allowances
- The wage rate is the price of labour, expressed as an amount of money per hour,
day, week, month, or year.
- There is no distinction between wages and salaries – both referred to as wages /
wage rate
Nominal wages = the actual money received.
Real wages = represent the purchasing power of these wages, determined by the prices
of goods and services.
- Reflect the quantity of goods and services that can be bought with nominal
wages.
- If nominal wages increase faster than prices, real wages rise, improving the
workers' standard of living
- If prices increase faster than nominal wages, real wages decline, reducing
purchasing power.
12.3 A Perfect Competitive Labour Market
Requirements for perfect competition
We use perfect competition as a benchmark against which the performance of other
market structures could be compared
The requirements for perfect competition in the labour market include the following:
- There must be a large number of buyers (employers) and a large number of
sellers(employees) in the market.
o Number must be so large that no individual can influence the price of
labour.
o All participants must be price takers
- Labour must be homogeneous – all workers have identical skills
- Workers must be completely mobile, must move freely from one employer to
another.
- No gov intervention influencing employers or workers
- All participants must have perfect knowledge of market conditions.
- Perfect competition in the goods market
o No employer must be able to pass increased labour costs onto customers
in the form of higher prices
Equilibrium in the labour market
In a perfectly competitive labour market, the equilibrium wage rate and the equilibrium
qty are determined by the interaction of supply and demand.
2
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller jennamortonx. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.92. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
73314 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now