Definition of Labour Force
This is the number of people of working age who are employed or who are looking for employment. I.e. number employed plus the number unemployed
Definition of Participation Rate
This the ratio of the working age population to the number of employed. see Participation Rate
Human Capital
This refers to the productivity of workers, which depends on the education and skill level of workers. Human capital
Flexible Labour Markets
This means that the labour markets quickly adjust to a competitive equilibrium. Flexible labour markets involve the following features:
- Easy to hire and fire workers
- Labour is occupationally and geographically mobile
- Government intervention does not distort the market
- Flexible labour market
Efficiency Wage Theory
Definition: This states that if workers are paid more they will work harder. Therefore a cut in wages could lead to lower productivity. Efficiency wage theory.
Tightening Labour Market
This means that unemployment is falling and there are few job vacancies available. The decline in job vacancies tends to push up wages as firms find it more difficult to recruit workers.
Labour Productivity
This refers to the output per worker in a certain period of time.
Monopsony
This occurs when there is just one buyer of labour, or a firm has market power in setting wages.
See Monopsony
Free movement of labour
The ability for workers to freely move between national boundaries and participate in the labour market. It is a key feature of the European Union, leading to migration between low income and high-income countries.
Natural rate of unemployment
Unemployment when the labour market is in equilibrium. Essentially supply side unemployment of structural and frictional unemployment.
See: Natural rate of unemployment
Zero hour contracts
When workers do not have any guaranteed number of hours. In periods of low demand, firms can employ workers for just a few hours. In periods of high demand, firms can employ workers for moe.
See: Zero hour contracts
Gig economy
A labour market with a greater proportion of multiple jobs – zero hour contracts and self-employed workers taking different jobs.
National Minimum Wage
The legal minimum wage for employing workers. National minimum wage
Dependency Ratio
The number of dependents (pensioners, young people)/ working age population. Dependency ratio
Economic rent and transfer earnings
- Economic rent, income above the minimum wage level a worker would accept.
- Transfer earnings – the minimum wage level necessary for workers to enter the labour market and accept the job.
- Economic rent and transfer earnings
Marginal revenue product (MRP)
Demand for labour depends on MRP (the amount an extra worker adds to revenue of a firm) MRP = MPP * MR. Marginal revenue product
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