|
|
Pearson Education Materials
Workshop 5: Wages and the Distribution of Income
- The assumptions of perfect labour markets are similar to those of perfect goods markets. There are four main assumptions. What are they?
- The diagrams below show a local market for plasterers. It is assumed that it is a perfect market.
- 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.
- 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.
- A deterioration in the working conditions for plasterers. demand/supply left/right
- 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
- Increased wages in other parts of the building trade (as a result of union activity). demand/supply left/right
- Increased costs associated with employing plasterers (e.g. employers having to pay higher insurance premiums for accidents to plasterers). demand/supply left/right
- A reduction in the wage rate of plasterers. demand/supply left/right
- 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.
| 1 |
50 |
... |
... |
| 2 |
110 |
60 |
... |
| 3 |
170 |
... |
... |
| 4 |
220 |
... |
... |
| 5 |
260 |
... |
... |
| 6 |
... |
30 |
... |
| 7 |
... |
... |
40 |
| 8 |
... |
15 |
... |
- Fill in the missing figures in the above table (enter the figure for MPP and MRP in the spaces between the rows).
- How many workers will the firm employ (to maximise profits), if the wage rate were:
- £50 per week? _____________________
- £110 per week? ____________________
- £100 per week? ____________________
- The demand curve for labour under perfect competition is given by the MRP (of labour) curve. True / False
- Will a change in each of the following lead to a shift in or a movement along the demand curve for labour?
- 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
- 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.
- How many workers will the monopsonist employ if it wishes to maximise profit?
- What hourly wage rate will the monopsonist pay?
- 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?
- What would be the hourly wage rate now?
- 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?
- £2.80 ACL ____________ MCL ____________
- £4.00 ACL ____________ MCL ____________
- How many workers would be employed by the monopsonist at each of the following minimum wage rates?
- £3.00 ____________
- £3.40 ____________
- £3.80 ____________
- £4.20 ____________
- 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?
- New figures showing that the firm's profits for the last year were less than anticipated. Increase/Decrease the union's power.
- A rise in unemployment. Increase/Decrease the union's power.
- New figures showing that inflation has risen. Increase/Decrease the union's power.
- A successful recruiting drive for union membership. Increase/Decrease the union's power.
- Increased competition for the firm's product from imports. Increase/Decrease the union's power.
- A rapidly growing demand for the firm's product. Increase/Decrease the union's power.
- A closed shop agreement. Increase/Decrease the union's power.
- The firm gains substantial monopoly power in the goods market. Increase/Decrease the union's power.
- 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 household weekly incomes (quintiles) |
Wages and salaries(1) |
Income from self-employment(2) |
Income from investments(3) |
Pensions and annuities(4) |
Social security benefits(5) |
Other(6) |
Total(7) |
| Lowest 20% |
6 |
1 |
3 |
8 |
80 |
2 |
100 |
| Next 20% |
31 |
5 |
4 |
15 |
43 |
2 |
100 |
| Middle 20% |
62 |
6 |
4 |
11 |
15 |
1 |
100 |
| Next 20% |
75 |
7 |
3 |
8 |
6 |
2 |
100 |
| Highest 20% |
77 |
12 |
4 |
3 |
2 |
1 |
100 |
| All households |
67 |
9 |
4 |
7 |
12 |
1 |
100 |
- How would you explain the relatively high figures in columns (3) and (4) for the second poorest quintile?
- What do the figures suggest are the major sources of inequality in incomes?
|
