labour markets

Measures of Poverty

Measures of Poverty

Poverty implies low income and struggling to meet basic needs. There are two main types of povertyAbsolute poverty – income below a certain threshold necessary to meet basic necessities of life (food, shelter, clothing, rent) Relative poverty – Individuals receiving income a certain level (e.g. 50%) below the median income of the general population.Definitions of absolute poverty do not change with economic growth. Usually, if average incomes rise, then more of the population should be lifted out of absolute poverty. However, if economic growth is unequal and high-income…

Effect of minimum wage on economic growth, inflation and AD/AS

Effect of minimum wage on economic growth, inflation and AD/AS

How does the minimum wage affect aggregate demand/aggregate supply and macroeconomic factors such as inflation, unemployment and economic growth? A minimum wage is the statutory minimum wage that employers can pay per hour. In 2017, the UK minimum wage was set at £7.50 an hour for workers over 25. Higher wages increase incomes and potentially cause higher consumer spending. However, there is a danger a minimum wage can cause higher unemployment, which would cause lower economic growth.   Effect on economic growth If workers receive a pay increase, then there will be…

Factors that explain wage inequality

Factors that explain wage inequality

A look at factors that explain wage inequality – including classical economic theory and labour market imperfections. Readers Question: Idealized free market theory argues that it is automatic for each worker to receive just what he or she is worth; otherwise, an “underpaid” worker could just look elsewhere to bid a higher salary.  Could established theories of the limitations of the free market – unfulfilled requirements and lack of competition – help explain wage inequality? Brief overview of wage inequalityClassical theory of labour…

Participation Rate

Participation Rate

Definition of Participation Rate. The participation rate is the number of people working or actively seeking work as a % of the working population (16-65). The participation rate is similar to the concept of being ‘economically active’. If a person drops out of the labour market, they are considered economically inactive and no longer participating. Why People May Drop out of Labour…

Labour shortages

Labour shortages

Labour shortages occur when employers struggle to fill labour vacancies because of insufficient labour applying for the jobs. Labour shortages can occur in geographical regions or in occupations with special requirements in terms of skill or function. Labour shortages can also be seasonal in industries like retail (Christmas) and agriculture (harvest time) Reasons for labour shortagesGeographical shortages. An area with a booming economy, but poor housing can experience labour shortages quicker than the rest of the economy. In the UK, London has strong employment demand but suffers from high rent…

Reasons for falling wages

Reasons for falling wages

Since the financial crisis, we have seen an unprecedented stagnation / decline in real wages. This decline has been most noticeable for low income workers, with growing levels of inequality. The decline / stagnation in real wages is a global phenomena – though some countries have been more affected than others.Reasons suggested for falling wages since 2008 include:Recession – causing unemployment and downward pressure on wages Decline in trade union membership. Increased labour market flexibility, such as more zero hour contracts, new gig economy…

Should we increase the state pension age?

Should we increase the state pension age?

Many Western economies face a demographic time bomb – an ageing population, which places strain on government spending and the welfare state. To deal with this situation, governments face several difficult choices –Raise taxes to pay for pensions, Shift the emphasis on to the private sector provision of pensions, Raise the retirement age Cut other forms of spending to be able to maintain pension commitments.Recently, the UK chancellor George Osborne, has suggested that he favours a solution which involves automatically linking state pension to life expectancy; this…