Labour Market Failure
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This is a recording of a revision webinar looking at aspects of labour market failure.
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Labour Market Failure
- 1. Labour Market Failure A Level Economics Revision 2017
- 2. Unemployment rate in the UK 0 2 4 6 8 10 12 14 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Unemployment rate (aged 16 and over, seasonally adjusted) Remember to disaggregate! Regional / age / gender / duration of unemployment
- 3. Economic Inactivity Rate (%) 20 21 22 23 24 25 26 27 JantoMar1971 JantoMar1972 JantoMar1973 JantoMar1974 JantoMar1975 JantoMar1976 JantoMar1977 JantoMar1978 JantoMar1979 JantoMar1980 JantoMar1981 JantoMar1982 JantoMar1983 JantoMar1984 JantoMar1985 JantoMar1986 JantoMar1987 JantoMar1988 JantoMar1989 JantoMar1990 JantoMar1991 JantoMar1992 JantoMar1993 JantoMar1994 JantoMar1995 JantoMar1996 JantoMar1997 JantoMar1998 JantoMar1999 JantoMar2000 JantoMar2001 JantoMar2002 JantoMar2003 JantoMar2004 JantoMar2005 JantoMar2006 JantoMar2007 JantoMar2008 JantoMar2009 JantoMar2010 JantoMar2011 JantoMar2012 JantoMar2013 JantoMar2014 JantoMar2015 JantoMar2016 Inactivity rate
- 4. Root causes of labour market failure • Occupational immobility - barriers to moving easily between jobs • Geographical immobility – barriers to changing location to find a new job Labour Immobility • The unemployment trap – where economic incentives to take a job are poor • The poverty trap – where there are disincentives to earn extra income Disincentives to find / take work • This is a part explanation of the gender gap in pay and women in senior roles • Discrimination badly affects wages and employment for affected groups Discrimination by employers • They can use their “buying power” in labour market to drive down wages Monopsony power of employers
- 6. Labour Immobility Thousands of qualifications will be replaced by 15 "T- Level" training routes specific to different industries, from finance and accounting to engineering and manufacturing.
- 7. Labour Immobility From September 2017, three- and four-year-olds in England will be entitled to 30 free hours of care per week in term time - up from the current 15 hours. But will local authorities and other care providers have the capacity to meet the expected demand?
- 8. Labour market discrimination • Labour market discrimination occurs when an employers uses metrics/characteristics other than the measured productivity of a worker to judge their attractiveness for a job/role • Discrimination can be on the basis of: 1. Gender 2. Ethnicity / racial profile 3. Faith 4. Sexuality 5. Age 6. Height 7. Social background 8. Any other characteristic
- 9. Labour market discrimination Wage Rate Employment Labour Supply W1 E1 • The demand for labour of discriminated groups will be lower and wages and employment will be lower as a result LD1 LD for discriminated group E2 W2
- 10. Gender Pay Gap 164.2 301.8 435 578 640 620.2 526.6 133.8 279.9 414.5 536.6 507.1 465.5 411.4 0 100 200 300 400 500 600 700 16 to 17 18 to 21 22 to 29 30 to 39 40 to 49 50 to 59 60 and over Medianweeklyearningsin£s Men Women Median weekly earnings (full-time) in UK, April 2014, by age group and gender
- 11. Explaining the Gender Pay Gap 1. Breaks from the labour market • When women take maternity leave to raise a family, it is harder to achieve promotion when re-entering the jobs market. • Age at which many women take a break from the labour force is often the point when careers take off and wages rise at a fast pace 2. Access to education: In many lower and middle income countries, opportunity for women to take qualifications and gain experience is limited, this is affected by social norms and high fertility rates 3. Patterns of employment: In developed countries: • Women are disproportionately represented in part time work • Many females tend to be clustered in service occupations that pay less – e.g. clerical, caring, catering, cleaning • Many women work in vocations where wages are relatively lower 4. Gender pay gap remains affected by continued employer discrimination 5. Increased female participation rates in economies has increased the supply of labour which may have contributed to lower relative wages
- 12. Monopsony in the Labour Market National Health Service Armed Forces Out-Sourcing - Capita and G4S Amazon and Sports Direct Supermarkets Local councils • Chain of Reasoning • A monopsony occurs when there is a sole or a dominant employer in a labour market. • The employer therefore has buying power over employees • This gives them wage- setting power • In theory this leads to lower wages than in a competitive market.
- 13. Monopsony Analysis (Condensed) Wage Rate Employment Labour Supply (= ACL) W1 E1 • Profit maximising employment level is where MCL=MRPL i.e. E2 number of people are employed • Their marginal revenue product is valued at W2 • Monopsony power of the employer allows them to pay a wage rate W3 Labour Demand = MRPL Marginal cost of labour (MCL) E2 W2 W3
- 14. Monopsony Analysis (Condensed) Wage Rate Employment Labour Supply (= ACL) W1 E1 • Monopsony employer can use their buying power to pay a wage lower than the value of the marginal revenue product of workers employed at E2 • Monopsony power can lead to exploitation of employed workers Labour Demand = MRPL Marginal cost of labour (MCL) E2 W2 W3 Total wages Wages lost from under-payment by employer
- 15. Policies to address labour market failure • Targeted employment subsidies / apprenticeships / internship opportunities • Reforms to the housing market to improve affordability / lower travel costs Labour Immobility • Reforms to incomes taxes (lower marginal rates) & benefit reforms (cap + conditionality attached to welfare claims) • Increase in the national minimum wage / expansion of the living wage Disincentives to find / take work • Tougher laws on equality and penalties for businesses flouting the law • Laws on unfair dismissal / minimum wage + other measures to cut poverty pay Discrimination by employers • Encourage business start-ups / small businesses as new employers Monopsony power of employers
- 16. A*: Efficiency Wage Theory Efficiency Wage Model • Pay positively linked to productivity • Psychological factors • Employers encouraged to improve training • Less absenteeism at work
- 17. A*: Is the welfare cap working? Cap limits the total amount of benefits that a household working less than 16 hours per week could claim at £20,000 a year. outside of London, or £23,000 in the capital.
- 18. A*: Costs and Benefits of Gig Economy
- 19. D1: Costs and Benefits of Gig Economy
- 20. Self employment rates (context)
- 21. D1: Do Robots Destroy Jobs?
- 22. A*: Do Robots Destroy Jobs? 45,000 robots are working away at Amazon fulfillment centers. Amazon Robotics’ Kiva travels at a speed of 5,5 kilometers per hour und can lift up to 340 kilograms. The Amazon workforce stood at 300,000 employees at the end of September 2016. That’s double the numbers than in 2014.
- 23. A*: Debate over universal basic income A basic income is a periodic cash payment unconditionally delivered to all on an individual basis
- 24. Labour Market Failure A Level Economics Revision 2017