Labour Markets, Wages And Industrial Relations

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Labour Markets, Wages and Industrial Relations

The UK Labour Market • Trends in the UK labour market – sectoral shift • from agriculture to manufacturing • from manufacturing to services

Employment in different sectors of the UK economy 20

Agriculture Mining, energy and construction

15

Manufacturing

Millions

Services

10

5

0 1890 1900 1910 1920 1930 1939 1950 1960 1970 1980 1990 2003

Employment in different sectors of the UK economy 20

Agriculture Mining, energy and construction

15

Manufacturing

Millions

Services

10

5

0 1890 1900 1910 1920 1930 1939 1950 1960 1970 1980 1990 2003

Employment in different sectors of the UK economy 20

Agriculture Mining, energy and construction

15

Manufacturing

Millions

Services

10

5

0 1890 1900 1910 1920 1930 1939 1950 1960 1970 1980 1990 2003

Employment in different sectors of the UK economy 20

Agriculture Mining, energy and construction

15

Manufacturing

Millions

Services

10

5

0 1890 1900 1910 1920 1930 1939 1950 1960 1970 1980 1990 2003

Employment in different sectors of the UK economy 20

Agriculture Mining, energy and construction

15

Manufacturing

Millions

Services

10

5

0 1890 1900 1910 1920 1930 1939 1950 1960 1970 1980 1990 2003

The UK Labour Market • Trends in the UK labour market (cont.) – rise in part-time employment

Full-time and part-time employment in the UK 30

Employment (millions)

25

20

15

10

5

0 1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Full-time and part-time employment in the UK 30

Total employment

Employment (millions)

25

20

15

10

5

0 1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Full-time and part-time employment in the UK 30

Total employment

Employment (millions)

25

Full-time employment 20

15

10

5

0 1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Full-time and part-time employment in the UK 30

Total employment

Employment (millions)

25

Full-time employment 20

15

10

Part-time employment 5

0 1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

The UK Labour Market • Trends in the UK labour market (cont.) – rise in part-time employment – rise in female participation rates

The UK Labour Market • Trends in the UK labour market (cont.) – rise in part-time employment – rise in female participation rates – rise in temporary employment

The UK Labour Market • Trends in the UK labour market (cont.) – rise in part-time employment – rise in female participation rates – rise in temporary employment – effects of downsizing

Market-determined Wage rates and Employment • Perfect labour markets – assumptions of a perfect labour markets • everyone is a wage taker • freedom of entry • perfect knowledge • homogeneous labour

– determination of the market wage • horizontal supply curve to individual employers • horizontal demand curve for individual workers

A labour market: whole market Sall workers

Hourly wage

in the market

Wm

Dall firms in the market

O Labour hours

Hourly wage

A labour market: individual employer

Slabour

Wm

Dindividual employer O

Q1 Labour hours

A labour market: individual worker

Hourly wage

Sindividual worker

Dlabour

Wm

O

Q2 Labour hours

Market-determined Wage rates and Employment • The supply of labour – the supply of hours by an individual worker • marginal disutility of work • income and substitution effects of wage changes • the shape of the individual’s supply curve of labour

The marginal disutility of hours worked

Disutility

MDU

O Hours worked

The supply of hours worked

Hourly wage

S

O Hours worked

Backward-bending supply curve of labour

Hourly wage

S

WI

O

Hours

Market-determined Wage rates and Employment • The supply of labour – the supply of hours by an individual worker • marginal disutility of work • income and substitution effects of wage changes • the shape of the individual’s supply curve of labour

– the supply of labour to an individual employer

Market-determined Wage rates and Employment • The supply of labour (cont.) – the market supply of a given type of labour • position of the curve – number of qualified people – non-wage benefits – desirability of alternative jobs

• elasticity of the market supply of labour – the mobility of labour

Market-determined Wage rates and Employment • The demand for labour: marginal productivity theory – the profit-maximising approach – measuring the marginal cost and revenue of labour • marginal cost of labour (MCL) • the marginal revenue product of labour (MRPL)

– the profit-maximising level of employment

Marginal physical product of labour curve x

Output

Diminishing returns set in here

MPPL O

Q of labour

The profit-maximising level of employment £

MCL= W

Wm

MRPL = MPPL × Pgood

MRPL O

Q of labour

Qe

Market-determined Wage rates and Employment • The demand for labour: marginal productivity theory – the profit-maximising approach – measuring the marginal cost and revenue of labour • marginal cost of labour (MCL) • the marginal revenue product of labour (MRPL)

– the profit-maximising level of employment – derivation of the firm's demand curve for labour

Deriving the firm’s demand curve for labour £ a

W1

MCL1

b

W2

c

W3

MCL2 MCL3

Profits maximised where MRPL = MCL MRPL O

Q1 Q of labour

Q2 Q3

Deriving the firm’s demand curve for labour £ a

W1

MCL1

b

W2

c

W3

The MRPL curve traces out the demand curve

O

MCL2 MCL3

D Q1

Q of labour

Q2 Q3

Market-determined Wage rates and Employment • Elasticity of demand for labour – determinants • price elasticity of demand for the good • ease of factor substitution • elasticity of supply of complementary factors • elasticity of supply of substitute factors • ratio of wage costs to total costs • time period

• Wages and profits under perfect competition

Wages and a firm's surplus over wages £

Surplus for firm MCL = W

W

Wages MRPL O

Q of labour

Qe

Firms with Power in the Labour Market • Types of labour market power – monopsony power of employers – monopoly power of trade unions

• Firms with monopsony power in employing labour – MCL > W

Monopsony £

MCL

ACL ≡ W (supply curve)

MRPL O Q of labour

Firms with Power in the Labour Market • Types of labour market power – monopsony power of employers – monopoly power of trade unions

• Firms with monopsony power in employing labour – MCL > W – effects on wages and employment

Monopsony £

MCL

ACL ≡ W (supply curve)

W2 W1

MRPL O

Q1 Q of labour

Q2

The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers – effects of wage increases on employment

£

Monopoly union facing producers under perfect competition S

W1

D O

Q1

Q of labour

£ W2

Monopoly union facing producers under perfect competition S Unemployment

W1

D O

Q2

Q1

Q3

Q of labour

The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers – effects of wage increases on employment – productivity deals

The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers – effects of wage increases on employment – productivity deals

• Bilateral monopoly

The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers – effects of wage increases on employment – productivity deals

• Bilateral monopoly – no unique equilibrium

The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers – effects of wage increases on employment – productivity deals

• Bilateral monopoly – no unique equilibrium – relationship between wages and employment

Bilateral monopoly £

S1 (=ACL1)

MCL1

Monopsony: no union

W1

No un

ion

n

N

o

o ni

u

MRPL O

Q1

Q of labour

Bilateral monopoly £

MCL1

x

W2

S1 (=ACL1) MCL2 = ACL2 Bilateral monopoly

W1

No un

ion

n

N

o

o ni

u

MRPL O

Q1

Q3

Q of labour

Bilateral monopoly £

MCL1

W2

x

MCL2 = ACL2 Wage can rise to W2 with no fall in employment

W1

MRPL O

Q1

Q of labour

The Role of Trade Unions • Unions with monopoly power • Unions facing competitive employers – effects of wage increases on employment – productivity deals

• Bilateral monopoly – no unique equilibrium – relationship between wages and employment – how a rise in wage rates could lead to an increase in employment

Bilateral monopoly £

MCL1

x

W2

MCL3 = ACL3

W3

Wage can rise from W1 to W3 and employment rises to Q2

W1

MRPL O

Q1

Q2

Q of labour

The Role of Trade Unions • Collective bargaining – union threats and promises – employers’ threats and promises

• The outcome of negotiations – power – attitudes – union's membership – scope for movement – bargaining skills – information

• Role of government

The Efficiency Wage Hypothesis • Meaning of efficiency wage rates • Why might higher wage rates lead to higher productivity? – less ‘shirking’ – reduced labour turnover – self-selection – morale

• In which parts of the labour market are efficiency wage rates likely to be paid?

Low Pay and Discrimination • Low pay – identifying workers who are low paid – evidence on low pay – the growth in low pay • • • •

unemployment due to recession unemployment due to technological change the growth in part-time employment changes in labour laws

• Minimum wages – effects in competitive markets – effects in monopsonistic markets – evidence on the effects of a minimum wage

Low Pay and Discrimination • Discrimination – types of discrimination – differences in pay not related to productivity – differences in productivity arising from discrimination in social opportunity

Low Pay and Discrimination • Gender and the labour market – evidence on wage inequality

Average gross hourly earnings for full-time adult UK employees (pence per hour): 1970-2002

Average gross hourly earnings for full-time adult UK employees (pence per hour): 1970-2002

Average gross hourly earnings for full-time adult UK employees (pence per hour): 1970-2002

Average gross hourly earnings for full-time UK employees on adult rates (2002)

Average gross hourly earnings for full-time UK employees on adult rates (2002)

Average gross hourly earnings for full-time UK employees on adult rates (2002)

Low Pay and Discrimination • Gender and the labour market (cont.) – causes of inequality between the sexes • types of employment (including part time) • career breaks • differences in mobility • union membership • custom and practice • training • prejudice

– effects of equal pay legislation

The Flexible Firm and the Market for Labour • Flexible labour markets – the flexible firm • functional flexibility • numerical flexibility

– core workers and peripheral workers – Implications for wages

The flexible firm

The flexible firm

Core group Primary labour market Functional flexibility

The flexible firm First peripheral group Secondary labour market Numerical flexibility Core group Primary labour market Functional flexibility

Self-employment First peripheral group Secondary labour market Numerical flexibility Core group Primary labour market Functional flexibility

The flexible firm

Self-employment

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility Core group Primary labour market Functional flexibility

The flexible firm

Self-employment

The flexible firm

Core group Primary labour market Functional flexibility

Subcontracting

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

Self-employment

The flexible firm

Core group Primary labour market Functional flexibility

Increased outsourcing

Subcontracting

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

Self-employment

The flexible firm

p

ou

gr

nd

peripheral

Increased outsourcing

Subcontracting

Core group Primary labour market Functional flexibility

co Se

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

Self-employment

The flexible firm

p

ou

gr

peripheral

Increased outsourcing

Subcontracting

Core group Primary labour market Functional flexibility

nd co Se ort Sh m ter acts ntr co

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

Self-employment

The flexible firm

p

ou

gr

peripheral Pu Su blic Tra bsid ine y es

Increased outsourcing

Subcontracting

Core group Primary labour market Functional flexibility

nd co Se ort Sh m ter acts ntr co

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

Self-employment

The flexible firm

p

ou

gr

peripheral Pu Su blic Tra bsid ine y Delayed es recruitment

Increased outsourcing

Subcontracting

Core group Primary labour market Functional flexibility

nd co Se ort Sh m ter acts ntr co

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

Self-employment

The flexible firm

p

ou

gr

peripheral Pu Su blic Tra bsid ine y Delayed es recruitment

Increased outsourcing

b Jo ing ar h s

Subcontracting

Core group Primary labour market Functional flexibility

nd co Se ort Sh m ter acts ntr co

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

The flexible firm

Self-employment

Increased outsourcing

Pa tim rt e

p

ou

gr

peripheral Pu Su blic Tra bsid ine y Delayed es recruitment

Subcontracting

Core group Primary labour market Functional flexibility

nd co Se ort Sh m ter acts ntr co

Agency temporaries

First peripheral group Secondary labour market Numerical flexibility

b Jo ing ar h s

The Flexible Firm and the Market for Labour • The Japanese model – total quality management – elimination of waste, 'just-in-time' methods – team work – functional and numerical flexibility

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