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