Entries Tagged 'labour markets' ↓

Readers Question Evaluate the likely effectiveness of two policies that german government could introduce to increase labour market flexibility.

Recently, the German government have introduced a variety of reforms to try and tackle the high rates of unemployment in Germany. These policies have included:

• It’s easier to hire and fire.
• It’s more tax-efficient to set up a small firm.
• Unemployment and welfare benefits have been cut and rolled into one, to force people to leave what the Germans call the “soziale Haengematte”, the welfare hammock.
• People who have been without a job for a long time are offered poorly-paid “one-euro jobs” in the public sector, to help them get used to regular work again.
• The employment offices have been restructured to provide more localised services.

German Unemployment at BBC

If we take cutting unemployment benefits. The idea is that this provides an incentive to look for work and accept lower paying jobs. In theory lower benefits increase the motivation to get a job rather than stay on the welfare system.

However, as the above article highlights, this becomes a problem when jobs are not available. In other words people have a strong incentive to get a better paid job, but there aren’t enough jobs going – particularly a problem in current recession. Cutting welfare benefits will also create an increase in relative poverty.

Making it easier to hire and fire workers reduces the cost of taking new workers on, but it may lead to more temporary employment. So some workers may get taken on but it creates more job insecurity in the workforce.

• European unemployment
• Increasing labour market flexibility

There is an interesting article in the Economist about immigration and the impact on the Irish economy.

Immigration tends to encourage a range of emotive responses, but, its impact on the flexibility of labour markets is worth considering.

In the boom years, Ireland was growing by upto 5% a year or more. Growth was particularly strong in the construction sector. This led to a shortage of workers in certain low skilled jobs. Usually, this rate of growth and shortage of labour would push up wage costs and create inflationary pressure. However, the growth and membership of the EU, encouraged many workers from eastern Europe to travel and work in Ireland. Thus, the supply of labour was relatively elastic, enabling Ireland to pursue fast growth with minimal inflation.

Now, the Irish economy has come to a sharp slowdown as the global credit crunch bites. Usually, this would lead to sharp rises in unemployment. But, as economic fortunes in Ireland deteriorate, many of the temporary workers are returning to Poland / Russia / Eastern Europe.

Therefore, the rise in unemployment will be mitigated by a decrease in the supply of labour.

A similar situation has been occuring in the UK. The exodus of immigrants has been accelerated by the fall in the value of Pound which means it is much less attractive to work and save in the UK. The benefit for the UK, is that as workers leave, the rise in unemployment is mitigated.

A key issues is the geographical mobility of eastern european workers. Immigrants from the Commonwealth (West Indies, India) would find it much more difficult to return home, just because work was drying up. But, for many young Poles, it’s just a question of driving home.

Of course, the net migration isn’t going to stop unemployment rising. Also as workers leave it will have an effect on reducing demand in the economy. But, it does give at least one benefit – more flexible labour markets.

The other question is when UK and Ireland recover, would Poles want to return?

Flexible labour markets

Benefits and costs of flexible labour markets

Readers Question: The three factors which can explain the wage differentials in the South East and the North ? (1,living cost 2, MRP theory , 3 ??), can I say that trade union power in the South East is more strong ? I just guess and dont know whether that is an acceptable answer ?

If you said trades unions could explain wage differentials between south east and north, it probably would be accepted. I would say:

Higher wages in the south east could be explained by a higher trade unions presence in the south east – There is greater membership, higher density and more power. Therefore, the unions could help to bargain for higher wages.

However for evaluation I would say:

• The unions might be more successful in the south east because unemployment is lower. In the north unemployment rates are higher therefore, the bargaining power of unions is diminished because firms could more easily replace striking workers with unemployed workers.
• Trades unions in the UK have declined as a political and economic force. These days in an era of service sector based economy they struggle to have much impact on increasing wages. In the south east, many of the industries have very low union density. Therefore it is unlikely that higher wages in the south east are due to trade union power.

So it is fine to say trades unions could explain differences in pay. I don’t think it is a particularly good point, but, that doesn’t matter. It actually makes the evaluation easier.

What Explains wage differentials

Why Women are paid less than men

Readers Question – what on earth is the black market and how does the immigrant have an impact on that?

The Black Market refers to economic activity that is not regulated by the government. It involves economic activity where people don’t declare tax returns or pay VAT e.t.c. It sometimes may be referred to as the ‘underground economy’ or ‘black economy’. The black market may involve illegal activity such as drug dealing or it may involve typical jobs such as paying a builder in cash – this becomes black market activity. Note it is a legal requirement to declare income to the inland revenue. But, it can be hard to trace and track down. Continue reading →

Readers Question ‘Evaluate two policies which the government might adopt to reduce the male inactivity rate’

Inactivity rates implies that people have left the labour market and are not able or are unwilling to seek employment. Inactivity rates can be caused by:

• Demotivation
• Sickness

Two Policies To Reduce Inactivity Rates

1. Make It more difficult to gain sickness / long term disability benefits. It is argued that it has become too easy for the long term unemployed to be given sickness benefits. The government could introduce a scheme where those on benefits are revaluated every 12 months and given the option to take on light work. This could help reintegrate them into the labour market. Continue reading →

Readers Question: Examine whether an extension of the national minimum wage to 16-18 year olds would affect their participation in the labour market. (10)

National Minimum Wage Rates from 1 October 2009

• Workers Aged 16-17  – £3.57
• Workers Aged 18-21 – £4.83
• Workers Aged 22 and over – £5.80
  

In theory extending the minimum wage to 16-18 year old workers would increase the incentive to join the labour market because work will become more attractive compared to studying at school and not earning.

However, the minimum wage for 16 and 17 year olds is still relatively low. It is £3.57 for people under 18. Therefore, the benefit of working on the minimum wage may still seem insignificant compared to the benefits from studying and getting qualifications which will enable higher life time earnings.

Also many 16 and 17  year olds probably live rent free therefore there is not an economic necessity to go out and get a job.

Personally, I think the effect of a minimum wage for 16-18 year olds is relatively insignificant, I can’t think of many students who would give up A levels just so that they could go and work in McDonalds for £3.57 an hour.

What is most likely is that there will be an increase in the participation of young workers doing part time jobs in addition to studying full time.

• The minimum wage was introduced in the UK in 1999 at £3.30.
• As of October 2007 the minimum wage for adult workers is £5.52. (It will rise to £5.73 by end of 2008)
• There is a development rate for workers 18-21 of £4.60
• For people under 18 (not of compulsory school age) the rate is £3.40
• Source: National Minimum wage HMRC

In this period 1999 – 2008, ILO  unemployment has fallen from 1,822,000  to 1.61 million or 5.25%. Claimant count method is even lower at less than 800,000
Readers Question and Essay:

• Why does a Minimum Wage not cause Unemployment? - Several reasons including monoposony, economic growth and increased productivity
• Case for Regional Minimum Wage

Readers Question: Assess the effectiveness of government policies to increase labour market flexibility in the UK.

It is difficult for the government to effectively increase labour market flexibility. However, this essay offers a few policies and evaluation of how successful they have been 

Policies Include:

1. Subsidised childcare provision – increase incentive for women to work.
2. Increased spending on education and training
3. Reducing power of trades unions and minimum wages
4. Making it easier to hire and fire workers.
5. New Deal

It is argued that the UK labour market has become more flexible than European counterparts such as France, Germany and Spain. Economists argue that this increased labour market flexibility is a reason why UK unemployment is lower and that the government can make a difference

I want to know what topics to study for unit 5 Edexcel economics? Which are the important ones?

If you are doing unit 5A Labour Markets the most important topics are:

• Determination of wages
• Impact of Trades Unions / minimum wages on labour markets
• Monopsony
• Flexible Labour Markets
• Government Intervention in Labour markets
• Unemployment in labour markets Continue reading →

The government has announced that the National Minimum wage will rise to £5.73 for workers over 21 – by the end of 2008. This means for a worker on a 40 hour week, their take home pay will be £229 per week. This also attracts top up benefits from the government in the form of family tax credits.

Trades Unions had suggested that the Minimum wage should rise to £6.75 a rate, a rate which would lift workers out of needing government benefits. Employers, predictably, were happy that minimum wages have only increased in line with inflation.

Continue reading →