Practise analysing labour demand, supply, MRP, wage determination, monopsony and intervention using diagrams, calculations and evidence on employment, rent and transfer earnings.
The chart gives information about the average daily wage rate for all industries in India.
What could have caused this trend in wage rates?
an increase in capital-intensive production
an increase in the number of industrial workers
an increase in the number of people unemployed
an increase in the productivity of labour
Developments in the electric vehicle (EV) industry
The advantage of the car is that it provides freedom for the consumer. However, the disadvantages of car use are that it creates congestion, carbon dioxide (CO2) and air pollution. These disadvantages led many countries to agree to replace internal combustion engine (ICE) cars with electric vehicles (EV) from 2030.
The successful introduction of EV is dependent on the development of battery technology and production of batteries to enable EV to drive a similar distance to ICE cars before they need re-charging. Better electrode design, battery assembly and chemistry are all technical aspects of battery production that could reduce costs, resulting in economies of scale from more efficient use of capital and labour. In addition to technical economies, there may well be purchasing economies of scale in battery production when buying raw materials and capital equipment in bulk.
Table 1.1 shows the estimated average costs of battery production for EV using two different technologies.
| Annual production | US$ per kwh | |
|---|---|---|
| kwh (millions) | Technology A | Technology B |
| 0.5 | 115 | 120 |
| 2.0 | 105 | 90 |
| 4.0 | 98 | 80 |
| 10.0 | 97 | 80 |
Table 1.1 Average costs of battery production
The shift to EV will cause redundancies for highly skilled mechanical engineers who have developed and refined the ICE. Often these workers are concentrated in specific areas, such as southern Germany.
The change from ICE cars to EV may also cause difficulties for governments in two ways. First, many countries rely on oil exports for a large part of their income. For example, Saudi Arabia receives 45 % of its gross national income (GNI) from oil exports. Secondly, other governments place an indirect tax on petrol (gasoline) and diesel as part of their general revenue. For example, Singapore charges S $ 0.41 per litre, approximately 17 % of the price.
Sources: Applied Energy 286 (2021) Economies of scale in battery cell manufacturing, 25 April 2022, and The Singapore Independent, 28 March 2022
Analyse, with the aid of a diagram, the likely impact of the change to EV on the labour market for workers producing ICE in southern Germany.
When will a profit-maximising firm employ the optimum number of workers?
when the average revenue product of labour equals the average cost of hiring workers
when the marginal revenue product of labour equals the average cost of hiring workers
when the marginal revenue product of labour equals the marginal cost of hiring workers
when the marginal revenue product of labour equals the trade union supplied cost of workers
What is not a factor affecting the supply of labour?
emigration rates
labour participation rate
labour productivity
unemployment benefits
Working overseas
Many low-income countries have large proportions of the population below the World Bank's absolute poverty level of per day (United States dollars, 2022). One way in which these countries try to reduce their poverty is by the migration of workers to richer countries. The migrants send a portion of their incomes, known as remittances, back home to support their families.
These overseas workers are a link between migration and development. The flow of remittance money is greater than the foreign direct investment and official development aid received by middle-income and low-income countries. Total remittances received by those countries in 2022 was billion, of which ( billion) was received by only five countries.
About 50\% of migrants from low-income countries went to high-income countries.
Migrants can find their incomes increase significantly. A nurse may make seven times more in Australia than in the Philippines, adjusted for purchasing power parity (PPP).
Unlike official aid, remittances flow directly to their receivers and are a stable source of income. They can buy extra food and they may provide savings for the receiver. They may reduce child labour in disadvantaged families and allow for higher spending on education through higher enrolments and more years of completed schooling.
Migration can reduce unemployment and raise wages in home countries. Migration may lead to larger benefits for the home country by increasing the rates of return on human capital caused by the creation of better, more productive, and higher paying jobs.
When the flow of migrants goes to a host country whose population is ageing, it may reduce the average age of the population. This can lead to an increase in the size of the labour force, reduce the age dependency ratio and make a positive tax contribution. The migrants increase the demand for host country output and may utilise housing in less popular areas. Those with a high level of education make an even more significant contribution to economic output.
Sources: The Guardian, 23 August 2023
asia.nikkei.com, 3 March 2023
imf.org, March 2020
Explain, with the aid of a diagram, how the migration of workers from a low-income country is likely to affect wages in the low-income country.
There is a decrease in the supply of female labour.
What will be the likely effect on male and female wages?
male wages
female wages
decrease
decrease
decrease
increase
increase
decrease
increase
increase
A government intervenes to raise the wages of a group of workers to prevent their exploitation.
Where might such government intervention be justified?
in an industry that is protected by tariffs on imports from abroad
in an industry where a trade union negotiates wages for the workers
in an industry where the output is produced by a single firm monopolist
in an industry where workers are employed by a monopsonist
Reduced Migration to the United States (US)
The factors of production land, labour, capital and enterprise form the basis for all economic output. Whilst land is geographically fixed, the other factors of production, for example labour, are mobile. Large numbers of migrants move from country to country every year. Many migrate to the US.
The average increase in the number of migrants working in the US was 0.6 million per year until 2018. However, the Covid-19 restrictions in place since 2019 prevented migration and by 2022 the total number of migrants working in the US was nearly 2 million lower than expected.
Half of migrants initially come as students, to be college educated, often in science-based subjects. Post-graduation, they often remain to work in the high-tech industries, before many return to their home countries with enhanced skills.
Well-educated immigrants are three times more likely to start businesses than inhabitants of the US. The reduction in the number of new migrants would reduce the number of new businesses and this, in turn, would reduce job creation by an estimated 200000.
The remaining non-college educated migrants work mainly in lower-paid sectors such as retail and agriculture. They also play an important role in industries such as hospitality and food-related services. Many of the migrants send money to family members who remain in their home countries.
Fig. 1.1 shows the relationship between job vacancies in various industries and the share of migrant workers in the workforces of these industries in the US.
Fig. 1.1: Unfilled job vacancies (\%) and migrant workers in the workforce (\%) for selected US industries, 2019
The reduction in migrants took place at the same time as more older US workers retired.
Mexicans and Central Americans form the largest share of migrants, at over 35% of the total. Average incomes in their home countries are between 10% and 20% of the US average. There is also significant unemployment and under-employment in their home countries. In the US, migrants earn on average 12% less than the average wage for all workers. This varies by ethnic origin: Hispanic workers earn 16% less than the average while white workers earn 15% more than average.
Sources: G Peri and R Zaiour, University of California, Davis. The EconoFact Network,
Statista.com
N Ward and J Batalova, Migration Policy Institute, 14 March 2023
Using the information and labour market theory, analyse why the wages received by migrant workers in the high-tech industries are likely to be higher than the wages received by migrant workers in the hospitality industry.
The diagram represents the demand and supply of labour in a competitive industry.
What is true about unit of labour L when they are paid wage W ?
L is paid only economic rent.
L is paid an element of economic rent and transfer earnings.
L is paid below transfer earnings and leaves the industry.
L is paid exactly transfer earnings and remains in work.