Workshop 5 Labour Market And The Distribution Of Income
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Workshop 5: Wages and the Distribution of Income 1. The assumptions of perfect labour markets are similar to those of perfect goods markets. There are four main assumptions. What are they? a. b. c. d.
2. The diagrams below show a local market for plasterers. It is assumed that it is a perfect market.
a.
Delete the wrong words (in bold) in the following passage:
The assumption of perfect competition means that the price of plaster / the wage rate of plasterers / the profitability of employers of plasterers cannot be affected by individual employers / workers / employers or workers. This means that the supply of labour to / the demand for labour by an individual employer is perfectly elastic, and that the supply of labour by / the curve for labour for an individual worker is perfectly elastic too.
b.
In diagram (b), which of the two curves would shift and in which direction as a result of
each of the following changes? There may be no shift in either curve. If so, delete all options.
i.
A deterioration in the working conditions for plasterers. demand/supply left/right
ii. iii. iv.
A decrease in the price of plaster. demand/supply left/right A decrease in the demand for new houses. demand/supply left/right An increased demand for plasterers in other parts of the country. demand/supply left/right
v.
Increased wages in other parts of the building trade (as a result of union activity). demand/supply left/right
vi.
Increased costs associated with employing plasterers (e.g. employers having to pay higher insurance premiums for accidents to plasterers). demand/supply left/right
vii.
A reduction in the wage rate of plasterers. demand/supply left/right
3. The following table shows how a firm's output of a good increases as it employs more workers. It is assumed that all other factors of production are fixed. The firm operates under perfect competition in both the goods and labour markets. The market price of the good is £2.
Number of
Total physical
workers
product (units)
Marginal
Marginal
physical product revenue (units)
product (£)
1
50
...
...
2
110
60
...
3
170
...
...
4
220
...
...
5
260
...
...
6
...
30
...
7
...
...
40
8
...
15
...
4. a.
Fill in the missing figures in the above table (enter the figure for MPP and MRP in the
spaces between the rows). b.
c.
How many workers will the firm employ (to maximise profits), if the wage rate were: i.
£50 per week? _____________________
ii.
£110 per week? ____________________
iii.
£100 per week? ____________________
The demand curve for labour under perfect competition is given by the MRP (of labour)
curve. True / False d.
Will a change in each of the following lead to a shift in or a movement along the
demand curve for labour?
i. ii. iii.
A change in the productivity of labour (MPP). shift / movement along A change in the wage rate (W). shift / movement along A change in the price of the good (= MR). shift / movement along
5. The following diagram shows a monopsony employer of labour. The vertical axis shows costs and revenue per hour. Assume that there is no trade union and initially that there is no minimum hourly wage rate.
a.
How many workers will the monopsonist employ if it wishes to maximise profit?
b.
What hourly wage rate will the monopsonist pay?
c.
Assuming instead that this were an industry under perfect competition, and that the
horizontal axis was now measured in thousands, how many workers would be employed? d.
What would be the hourly wage rate now?
e.
Returning to the monopsonist, with the horizontal axis once more measured in
individual workers, assume that the government imposes a minimum hourly wage rate. What will be the average and marginal costs of labour at each of the following minimum wage rates?
f.
i.
£2.80 ACL ____________ MCL ____________
ii.
£4.00 ACL ____________ MCL ____________
How many workers would be employed by the monopsonist at each of the following
minimum wage rates? i.
£3.00 ____________
ii.
£3.40 ____________
iii.
£3.80 ____________
iv.
£4.20 ____________
6. The extent to which a union will be able to secure higher wages from an employer will depend on its bargaining power. Will the following tend to increase or decrease a union's bargaining power?
a.
New figures showing that the firm's profits for the last year were less than anticipated.
Increase/Decrease the union's power.
b.
A rise in unemployment. Increase/Decrease the union's power.
c.
New figures showing that inflation has risen. Increase/Decrease the union's power.
d.
A successful recruiting drive for union membership. Increase/Decrease the union's
power.
e.
Increased competition for the firm's product from imports. Increase/Decrease the
union's power.
f.
A rapidly growing demand for the firm's product. Increase/Decrease the union's
power.
g.
A closed shop agreement. Increase/Decrease the union's power.
h.
The firm gains substantial monopoly power in the goods market. Increase/Decrease
the union's power. 7. The following table shows the sources of UK household income by quintile groups. (Note that not all rows add to 100 because of rounding errors.) Sources of UK household income as a percentage of total household income by quintile groups: 2000/1
Gross househ old
Wages Income
weekly and
Income
from self- from
Pension s and
income salarie employme investmen annuitie s
s(1)
nt(2)
ts(3)
s(4)
(quintil
Social securit y benefit
Other Total( (6)
7)
s(5)
es) Lowest 20% Next 20% Middle 20% Next 20%
6
1
3
8
80
2
100
31
5
4
15
43
2
100
62
6
4
11
15
1
100
75
7
3
8
6
2
100
Highest 20%
77
12
4
3
2
1
100
67
9
4
7
12
1
100
All househ olds 8. a.
How would you explain the relatively high figures in columns (3) and (4) for the second
poorest quintile?
b.
What do the figures suggest are the major sources of inequality in incomes?
2. The diagrams below show a local market for plasterers. It is assumed that it is a perfect market.
a.
Delete the wrong words (in bold) in the following passage:
The assumption of perfect competition means that the price of plaster / the wage rate of plasterers / the profitability of employers of plasterers cannot be affected by individual employers / workers / employers or workers. This means that the supply of labour to / the demand for labour by an individual employer is perfectly elastic, and that the supply of labour by / the curve for labour for an individual worker is perfectly elastic too.
b.
In diagram (b), which of the two curves would shift and in which direction as a result of
each of the following changes? There may be no shift in either curve. If so, delete all options.
i.
A deterioration in the working conditions for plasterers. demand/supply left/right
ii. iii. iv.
A decrease in the price of plaster. demand/supply left/right A decrease in the demand for new houses. demand/supply left/right An increased demand for plasterers in other parts of the country. demand/supply left/right
v.
Increased wages in other parts of the building trade (as a result of union activity). demand/supply left/right
vi.
Increased costs associated with employing plasterers (e.g. employers having to pay higher insurance premiums for accidents to plasterers). demand/supply left/right
vii.
A reduction in the wage rate of plasterers. demand/supply left/right
3. The following table shows how a firm's output of a good increases as it employs more workers. It is assumed that all other factors of production are fixed. The firm operates under perfect competition in both the goods and labour markets. The market price of the good is £2.
Number of
Total physical
workers
product (units)
Marginal
Marginal
physical product revenue (units)
product (£)
1
50
...
...
2
110
60
...
3
170
...
...
4
220
...
...
5
260
...
...
6
...
30
...
7
...
...
40
8
...
15
...
4. a.
Fill in the missing figures in the above table (enter the figure for MPP and MRP in the
spaces between the rows). b.
c.
How many workers will the firm employ (to maximise profits), if the wage rate were: i.
£50 per week? _____________________
ii.
£110 per week? ____________________
iii.
£100 per week? ____________________
The demand curve for labour under perfect competition is given by the MRP (of labour)
curve. True / False d.
Will a change in each of the following lead to a shift in or a movement along the
demand curve for labour?
i. ii. iii.
A change in the productivity of labour (MPP). shift / movement along A change in the wage rate (W). shift / movement along A change in the price of the good (= MR). shift / movement along
5. The following diagram shows a monopsony employer of labour. The vertical axis shows costs and revenue per hour. Assume that there is no trade union and initially that there is no minimum hourly wage rate.
a.
How many workers will the monopsonist employ if it wishes to maximise profit?
b.
What hourly wage rate will the monopsonist pay?
c.
Assuming instead that this were an industry under perfect competition, and that the
horizontal axis was now measured in thousands, how many workers would be employed? d.
What would be the hourly wage rate now?
e.
Returning to the monopsonist, with the horizontal axis once more measured in
individual workers, assume that the government imposes a minimum hourly wage rate. What will be the average and marginal costs of labour at each of the following minimum wage rates?
f.
i.
£2.80 ACL ____________ MCL ____________
ii.
£4.00 ACL ____________ MCL ____________
How many workers would be employed by the monopsonist at each of the following
minimum wage rates? i.
£3.00 ____________
ii.
£3.40 ____________
iii.
£3.80 ____________
iv.
£4.20 ____________
6. The extent to which a union will be able to secure higher wages from an employer will depend on its bargaining power. Will the following tend to increase or decrease a union's bargaining power?
a.
New figures showing that the firm's profits for the last year were less than anticipated.
Increase/Decrease the union's power.
b.
A rise in unemployment. Increase/Decrease the union's power.
c.
New figures showing that inflation has risen. Increase/Decrease the union's power.
d.
A successful recruiting drive for union membership. Increase/Decrease the union's
power.
e.
Increased competition for the firm's product from imports. Increase/Decrease the
union's power.
f.
A rapidly growing demand for the firm's product. Increase/Decrease the union's
power.
g.
A closed shop agreement. Increase/Decrease the union's power.
h.
The firm gains substantial monopoly power in the goods market. Increase/Decrease
the union's power. 7. The following table shows the sources of UK household income by quintile groups. (Note that not all rows add to 100 because of rounding errors.) Sources of UK household income as a percentage of total household income by quintile groups: 2000/1
Gross househ old
Wages Income
weekly and
Income
from self- from
Pension s and
income salarie employme investmen annuitie s
s(1)
nt(2)
ts(3)
s(4)
(quintil
Social securit y benefit
Other Total( (6)
7)
s(5)
es) Lowest 20% Next 20% Middle 20% Next 20%
6
1
3
8
80
2
100
31
5
4
15
43
2
100
62
6
4
11
15
1
100
75
7
3
8
6
2
100
Highest 20%
77
12
4
3
2
1
100
67
9
4
7
12
1
100
All househ olds 8. a.
How would you explain the relatively high figures in columns (3) and (4) for the second
poorest quintile?
b.
What do the figures suggest are the major sources of inequality in incomes?
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