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Labour market - Coggle Diagram
Labour market
Wage differential
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Advantages
Encourage productivity - because of the opportunities of being able to earn high wages, workers are encouraged to train and be educated, increasing productivity (MPPL), leading to higher wages. Higher productivity on the other hand increase productive efficiency and reduce cost for firms.
Encourage work not welfare - The opportunity of high wages increase the opportunity cost of not working (or receiving benefits) because workers lose out more compared to when wages are the same. This increase employment and reduce burden of government of transfer payments
Encourage entrepreneurs to take risks because wage differential leads to higher worker productivity. Entrepreneur knows that they have a higher chance to earn higher profit, therefore increasing their commitment and investment on the firm, including more funding, dynamic efficiency.
Disadvantage
Discrimination rather than differential - gender discrimination - firms may perceive men being more productive and "better" than their female counterparts, resulting in inequality.
May not work at certain wage rates. Because workers are satisfied with their income and prefer leisure over income because the marginal utility of income does not rise significantly when income is already very high.
Inequality - wage differential benefit certain groups more than others. Those that are more educated or with a recognised qualification can earn more with wage diffenetial compared to those with no qualification who may be stuck at the bottom of the corporate ladder. This widens income inequality gap.
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Evaluation points
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Effect limited because some jobs and nature of jobs may be difficult to measure (such as teachers and teamwork)
What affects MRPL
MR - the changes in the price of good the worker sell. The investment banker sells a much more expensive financial product compared to a retail sales who sell much cheaper product. As a result, the banker is rewarded by higher wages.
MPPL - the productivity of labour. A better educated and trained worker is more likely to have higher productivity compared to one that is no trained nor educated. Higher MPPL increase output per unit of input, increasing MRPL, therefore are rewarded with higher wages.
Monopsony
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Trade union
Advantages
Bargaining power to increase wages, non-monetary benefits for workers as a collective
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Limitations
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Inwards migration meant there are many migrants willing to work at lower wages if domestic workers decided to strike
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