Edexcel IGCSE Economics: The Labour Market - Revision Notes PDF

Head to www.savemyexams.com for more awesome resources Edexcel IGCSE Economics Your notes The Labour Market Contents An Introduction to the Labour Market Factors Influencing the Demand for Labour Factors Influenc...

Head to www.savemyexams.com for more awesome resources Edexcel IGCSE Economics Your notes The Labour Market Contents An Introduction to the Labour Market Factors Influencing the Demand for Labour Factors Influencing the Supply of Labour Wage Determination The Impact of Trade Unions Page 1 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources An Introduction to the Labour Market Your notes The Importance of Labour Labour costs often represent one of the most significant business costs If firms can lower their labour costs, they will be able to generate higher levels of profit Labour costs can be lowered by increasing the productivity of workers, or by reducing wages and salaries The Distinction Between Quality and Quantity of Labour Quality of labour refers to the skills, knowledge and expertise of workers The greater the quality of labour, the greater the potential productivity for the business E.g. Tech multinationals Google, Facebook, and Microsoft have all located in close proximity to universities of Paris (École Polytechnique, Sorbonne University, and Sciences Po) to access highly skilled workers Quantity of labour refers to the number of available workers to the business E.g. Multinational companies may set up production operations in countries like Bangladesh or Vietnam due to the large labour force availability at low wages Impact of Education and Training on Labour Education occurs in schools and universities and may be funded by the government, or may be run by private educational firms in some economies Training is undertaken by firms, and can shape the skills and knowledge of human capital and the quality of labour More skilled workers can drive innovation, creating a competitive advantage for businesses In countries like Sweden and Denmark, where university education is free, firms benefit from reduced training costs for some specialist workers E.g. Ireland's investment in education, particularly in the sciences, has attracted major pharmaceutical companies like Pfizer and Abbott Laboratories. These companies have access to labour that can specialise in research or production Some countries invest less in education, which puts the burden on business to spend more on education and training Page 2 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources This creates higher costs for firms, however workers are trained in specific skills E.g. Businesses like Tesla value training programs to nurture employee expertise Your notes Businesses whose sole focus is on short term profit may not prioritise investing in education or training programs Page 3 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Factors Influencing the Demand for Labour Your notes The Demand for Labour is a Derived Demand The labour market is composed of sellers of labour (households) and buyers of labour (firms) Workers supply their labour, and firms demand labour to produce an output The demand for labour is a derived demand This means the level of labour demand depends on the demand for goods and services If demand for goods and services increases, then demand for labour will increase, and vice versa E.g. As the demand for technology devices increases, technology firms require more skilled labour to design, manufacture and market the tech products The Demand Curve for Labour There is an inverse relationship between wage rate and the quantity of labour demanded Page 4 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Your notes As wages rise, the quantity demanded of labour falls Diagram analysis The demand curve for Labour (DL) shows that firms demand more labour as the wage rate decreases, which results in a downward sloping demand curve If the wage rate increases (W1 to W2), then the demand for labour falls (Q1 to Q2) Factors That Influence the Demand for Labour If the wage rate is the only factor that changes, there will be a movement along the demand curve for labour However, a range of factors can shift the entire demand curve for labour to the left or right When the demand curve for labour shifts to the left, it indicates that fewer workers are employed at each wage rate Page 5 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources When the demand curve for labour shifts to the right, it indicates that more workers are employed at each wage rate Your notes Factors that Influence the Demand for Labour Factor Explanation The price of the product If the selling price of the product increases, then the firm will be being produced incentivised to supply more, and the firm's demand for labour will increase The demand for labour curve will shift right The demand for the final As demand for labour is a derived demand, when an economy is product booming, demand for most goods and services will rise, and the demand for labour will increase The demand curve for labour will shift right Conversely, when an economy is in a recession, demand for most goods and services will fall, and the demand for labour will decrease The demand curve for labour will shift left The ability to substitute Firms will constantly evaluate if it will be possible and more cost capital (machinery) for effective to switch production from using labour to capital labour (machinery) If it is more cost effective, then demand for labour will decrease The demand curve for labour will shift left The productivity of labour If the productivity of labour increases (possibly through training), this will lower average costs, and firms will likely demand more labour The demand curve for labour will shift right Example: An Increase in Demand for Labour An increase in online shopping has led to an increase in demand for labour to deliver goods Page 6 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Your notes Increase in demand for labour due to the increased demand generated by online shopping Diagram analysis Due to the increases in e-commerce, online companies have experienced high demand for goods This had led to a demand for labour to deliver these goods There is a shift in demand for labour from DL → D1 The wage remains unchanged at W1, but the demand has increased from Q to Q1 workers Example: A Decrease in Demand for Labour Clothing manufacturers in countries like Bangladesh and Vietnam have been investing in automated production to reduce the demand for labour in order to save on labour costs Page 7 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Your notes Decrease in demand for labour as machinery replaces labour Diagram analysis Due to the ability to substitute capital for labour, there has been a fall in demand for labour to make clothes There is a shift in demand for labour from D → D2 The wage remains unchanged at W1, but the demand has decreased from Q to Q2 workers Page 8 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Factors Influencing the Supply of Labour Your notes The Supply Curve for Labour The supply curve for labour (SL) shows the relationship between the wage rate and number of workers willing to work in an occupation The SL shows that more labour is supplied as the wage rate increases, which results in an upward sloping supply curve There is a positive relationship between supply of labour and wage rate Diagram analysis The hourly wage rate increases from W1 to W2 There is an incentive for workers to supply more labour from Q1 to Q2 Page 9 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources There is a positive relationship between market supply of labour and wage rate The higher the wage rate, the higher the supply of labour in that occupation (and vice versa) Your notes Factors that Influence the Supply of Labour There are numerous factors that influence the amount of labour supplied to a particular industry The supply curve shows the market supply of labour, not the individual supply of labour Factors Influencing the Supply Of Labour Factor Explanation Population size A larger population means more people are potentially available for work E.g. India's growing population has led to increase in supply of labour Age distribution of More developed countries, such as Japan, have an ageing population that the population reduces labour supply Less developed countries often have a more youthful population, increasing supply of labour Migration Policies that increase the net migration rate increase the supply of labour to certain industries E.g. In 2022, 36% of Singapore's labour force were migrants Participation rate This is the number of people willing to work within the working age group. This can change depending on Amount of female participation Changes to retirement age School leaving age School-leaving age A rise in the school leaving age can lead to a reduction in the supply of labour and vice versa E.g. There has been a decline in school leavers in South Korea, which has led to concern for future labour supply Page 10 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Skills and The level of skills and qualifications generally undertaken can increase the qualifications supply of available workers for specific industries Your notes E.g. The more medical graduates, the greater the labour supply of nurses and doctors However, if school leaving age tends to be very low, workers are likely to be more unskilled Mobility of labour Geographical mobility of labour is the ease with which workers can move from one geographical area to another in order to secure employment It can depend on family ties, being able to secure/afford accommodation in an unknown location, cost of moving or quality of transport links Occupational mobility of labour is the ability of a worker to change occupations when they lose a job If their skill base is transferable between different occupations, then their occupational mobility is high Example: An increase in the Supply of Labour Changes to any of the factors affecting the supply of labour shifts the entire supply curve (as opposed to a movement along the supply curve) Page 11 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Your notes Changes in the supply of labour Diagram analysis India's growing population has led to an increase in the supply of labour More people are now available to work This caused a shift in supply from S to S1 The wage rate remains unchanged at W1 but the supply has increased from Q to Q1 Example: A Decrease in the Supply of Labour Changes to any of the factors of supply of labour shifts the entire supply curve (as opposed to a movement along the supply curve) Page 12 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Your notes Decrease in supply of labour due to changes in population Diagram analysis The UK raised the school leaving age from 16 to 18, which has led to a decrease in the supply of labour This caused a shift in supply from S to S2 The wage rate remains unchanged at W1 but the supply has decreased from Q to Q2 Worked Example Which one of the following would lead to a decrease in the supply of labour? (1) A. Policies to increase net migration B. Increase in the retirement age from 65 to 67 Page 13 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources C. Increase in demand for final product D. A shrinking population The only correct answer is: D. A shrinking population Your notes Explanation A fall in population decreases the supply of labour A is not correct because this would lead to an increase in the supply of labour B is not correct because this would lead to an increase in the supply of labour as people will retire at a later age, staying in the labour market C is not correct because this would lead to an increase in the demand for labour Page 14 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Wage Determination Your notes Diagrammatic Analysis of the Labour Market Labour market equilibrium occurs when the demand for labour (DL) is equal to the supply of labour (SL) The DL is the demand by firms for workers The SL is the supply of labour by workers Individual firms are price takers in the labour market as they have to accept the wage rate that workers are being paid in the industry If they offer a lower wage, they will likely struggle to recruit workers If they offer a higher wage, there will be an excess supply of workers applying to work there Page 15 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources In the labour market for graphic designers, the equilibrium wage rate is W and the equilibrium quantity is Q. At this point the DL = SL Your notes Diagram analysis The market for graphic designers is in equilibrium, where DL = SL The equilibrium wage is W and the quantity of labour is Q There is no excess supply of labour There is no excess demand for labour The Effect of a Rise in the Demand for Labour A rise in the demand for labour will shift the demand curve for labour to the right This causes an increase in the equilibrium wage rate and the quantity of labour employed Page 16 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Your notes A rise in the demand for graphic designers will cause the wage to rise to W2 and the quantity of graphic designers employed to rise to Q2 Diagram analysis A rise in the demand for websites will cause a rise in the demand for graphic designers (derived demand) The demand curve for labour will shift right There is a rise in the equilibrium wage rate to W2 There is a rise in the equilibrium quantity of graphic designers employed to Q2 The Effect of a Fall in the Supply of Labour A fall in the supply of labour will shift the supply curve of labour to the left Page 17 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources This causes an increase in the equilibrium wage rate and a fall in quantity of labour employed Your notes A fall in the supply of graphic designers will cause the wage to rise to W2 and the quantity of graphic designers employed to fall to Q2 Diagram analysis A rise in the demand for AI programmers may cause a fall in the supply of graphic designers as they switch to different jobs The supply curve of labour will shift left There is a rise in the equilibrium wage rate to W2 There is a fall in the equilibrium quantity of graphic designers employed from Q1 to Q2 Page 18 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources The Impact of Trade Unions Your notes Types of Trade Unions A trade union is an organisation that represents the interests of its workers in negotiations with a firm’s management or owners The interests of the worker include Wage and non-wage benefits of employment Health and safety in the working environment The reduction of discrimination and worker exploitation Trade unions are usually formed by the members of specific industries Airline pilots have a pilots' union Rail and sea workers have a rail and maritime union If there is no specialist union for an industry, most economies have a number of general unions which any worker can join, e.g. In the UK, UNISON is the largest trade union It represents workers from across the public sector, including those working in local government, education and health All trade unions can be classified into one of four categories Types of Trade Unions Type of Explanation Union General These represents skilled and unskilled workers in any industry e.g. truck drivers, union football referees, musicians & gardeners Industrial These represents workers in the same industry. Anyone in the industry can join, union irrespective of skill level or seniority e.g. The Fire Brigades Union in the United Kingdom Craft union These represent skilled workers with a specific trade e.g. painters, electricians Page 19 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources White collar These represent professional office-based (‘white-collar’) workers e.g. financial union advisors, teachers, architects, designers Your notes Work of Trade Unions Workers pay a monthly fee to join a trade union The fee is called a subscription Their membership ends when they stop paying this fee Benefits of union membership include: Collective bargaining Job-specific training Legal representation in disputes Discounts on a wide range of goods/services When collective bargaining fails and discussions break down, trade unions have several methods of forcing employers/governments to continue engaging with them These methods are collectively referred to as industrial action and include Strikes Overtime bans Work to rule Go-slows Impact of Trade Unions Trade union intervention changes the equilibrium wages and employment in the labour market Through collective bargaining, workers have the power to increase wages Through negotiation, trade unions can change the rate of employment The Focus of Trade Union Efforts Collective bargaining on wages, working conditions and contractual terms Page 20 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers  Head to www.savemyexams.com for more awesome resources Negotiates for acceptable wage levels - Negotiates for increased wages when often well above the minimum wage comparative industries receive pay increases Your notes Negotiates for inflation-linked pay rises Negotiates for higher wages when firms are making higher profits Negotiates standard weekly working hours Negotiates for improvements to working and any overtime payments conditions and equipment Protecting the employment of their workers Negotiates for the retention and Negotiates resettlement packages when firms redeployment of workers when relocate from one region to another and machinery (capital) replaces labour redundancy terms for those unable to relocate Negotiates to minimise job losses when Negotiates on a fair termination process when firms machinery (capital) replaces labour are struggling in an economic downturn Influencing government policy Negotiates with government on the Aims to influence policy through member creation/maintenance of minimum wage levels action such as strikes Negotiates to minimise job losses when Negotiates on a fair termination process machinery (capital) replaces labour when firms are struggling in an economic downturn Examiner Tips and Tricks You may be asked to assess the impact of trade unions. Trade unions have many benefits to workers, but they can also be beneficial to employers too. The firm can negotiate with just one body, instead of the time consuming task of negotiating with individual workers. Some countries have trade union officials sitting at the management table and working in collaboration with the management team. Page 21 of 21 © 2015-2025 Save My Exams, Ltd. · Revision Notes, Topic Questions, Past Papers