Teaching guide: podcast - the labour market
These podcast teaching guides cover topics from our AS and A-level Economics specifications. You can download them below.
This podcast teaching guides gives ideas for developing students’ interest in the labour market by encouraging the application of theory to real world issues.
Transcript
In this podcast, we will be talking about: The Labour Market. Particularly; the demand for labour and marginal productivity theory, influences upon the supply of labour to different markets, determination of relative wage rates in perfectly and imperfectly competitive markets, the impact of trade unions, the national minimum wage, and discrimination in the labour market
Due to the theoretical and often abstract concepts, teaching this part of the specification can sometimes be a challenge, but through application of the theory to real world labour market issues, you should find that students can develop a real interest in the topic.
It is worthwhile, at the outset, pointing out to students that the labour market is not, as suggested, a singular entity but is in reality a collection of markets each with different demand and supply characteristics and facing differing challenges and issues.
Before you immerse students into the theoretical aspects of the topic it’s worth taking a little time to explain just how important this particular market actually is. There is no better way to do this than looking at data on the labour market.
At the time of writing this podcast, more than 30 million people are in work in the UK. This figure represents approximately 75% of 16-64 year olds.
Both of these figures indicate just how important this market is to us all. The market, however, contains many potential anomalies. For example more men than women are in work and, in the European Union, the 16-24 age unemployment rate is double the 25-74 age unemployment rate.
Students should be encouraged to consider why these differences exist. If you can start this topic by sharing data such as this, it can help encourage students to take an interest.
When teaching this topic you may choose to go further and look at ethnic or sectoral differences in employment. For helpful resources and statistics, you can find up-to-date data on the labour market from the Office for National Statistics, Labour Market Survey.
Finally, before embarking on a theoretical analysis, you could engage students in a discussion on the emotive issues of the minimum wage and the living wage.
Active discussion on these issues can often result in students identifying with a pro or anti market view of the labour market, this establishes an excellent springboard for jumping into an analysis of what economic theory has to say about this important market. Such an approach can hopefully help students appreciate why they need to study this particular topic. By exposing them to interesting discussion, it can help to engage students when they are later asked to incorporate highly theoretical analysis. The key discussions can be revisited by the teacher in more analytical detail later.
You’ll know that in developing a demand curve for labour it is important to make clear that the demand for labour is a derived demand. This really is key to a student’s understanding when learning the concepts of marginal product and marginal revenue product. Arguably the best way to teach these aspects of economic theory is through the development of a simple numerical example supported by relevant diagrams.
You can always start this by showing a simple example of diminishing returns to varying the input of labour to a process, this can be used to develop a marginal product curve which, and with the addition of a product price, this can be further developed into a marginal revenue product curve. It is this that represents the demand curve for labour. The example you chose should ideally be one that students find engaging and relevant. This can help students understand the factors which influence the slope and position of this curve.
Next, try to challenge students to explain what shifts the demand curve for labour – as opposed to a movement along that curve. As always, a diagrammatic approach is encouraged to aid explanations. You should also address the elasticity of demand for labour and link to those factors which have been identified as influencing the demand for labour.
The derivation of the labour supply curve is more straightforward than that of the demand for labour curve. It is important that students understand that, whilst there are monetary and non-monetary factors which influence an individual’s desire to work, we depict the relationship as being linear and related to the market wage rate. It is helpful to discuss with students those non-monetary factors which influence the supply of labour such as working conditions, job satisfaction, job security and wage differentials.
The specification does not require students to consider the possible case of the backward sloping labour supply curve.
As with all market analysis, students need to understand the difference between those factors which cause a movement along a labour supply curve and those factors which actually shift the position of that curve. Furthermore, it is important to develop an understanding of the elasticity of supply of labour and how this is determined by factors such as occupational mobility and the skill levels of workers. Real world examples of differing labour supply elasticities will aid this understanding.
Having derived both supply of and demand for labour, the two can be brought together to consider the market and the concept of the equilibrium wage.
At this point it is worth asking students if they think the real world is actually quite this simple. By studying actual labour markets, for differing groups of workers, students can be led to the correct conclusion that, quite often, markets are not as free to operate as economic theory might suggest.
This leads students to the area of the specification that relates to imperfectly competitive labour markets.
Teaching now needs to focus on the impact of trade unions, monopsony in labour markets, fixed wage rates above equilibrium – such as a minimum or living wage and discrimination in labour markets. It is important for students to be able to use diagrams to show the impact of all of these factors.
The case of monopsony in a labour market is arguably the most complicated to analyse and parallels with monopoly can help aid understanding.
When explaining each of these market imperfections, it is helpful to cite real world markets. For example, the NHS might be studied as an example of near monopsony in the market for doctors and nurses.
Having helped students understand the basic theory of how labour markets function it will then be appropriate to look at the impact of trade unions on these markets. The United Kingdom was traditionally quite highly unionised but over the past few decades this has declined from the peak of 1979 and now only about 1 in 4 employees are a member of a trade union.
Students might find it an interesting discussion point that the education sector has probably the highest rate of trade union membership in the UK with 50% of educational staff being a member of a Trade Union. Why is it that their teachers and associates feel the need to be so highly unionised? It is both interesting and worthwhile to look at trends in Trade Union membership in the UK and the Department for Innovation and Skills produce an excellent annual statistical bulletin on this topic.
Having looked at the function and objectives of trade unions, students will appreciate that inevitably a trade union will be likely to put upward pressure on wages and students should, again, with the aid of appropriate diagrams, be able to analyse and explain the impact of this on labour markets. The classic case of the “closed shop” stance taken by many unions in the past and more subtly the impact of the British Medical Association on the supply of doctors all are examples of trade unions impacting on labour supply and, in turn, wages in labour markets.
Students should also be able to evaluate how effective trade unions are likely to be in achieving their aims and objectives. Changing attitudes, declining trade union membership and changes in the law relating to trade unions have all, arguably, weakened the power of UK trade unions. The specification asks students to consider the impact of a trade union entering, both a previously perfectly competitive labour market, and a market which has a monopsonistic purchaser of labour. In both cases you would expect to see upward pressure on wages and students should be comfortable showing these impacts diagrammatically.
The national minimum wage and, more recently, the concept of a living wage are both key applications of this area of theory and are closely related to the impact on labour markets of trade union activity. Students should be taught a brief history of why these have emerged and what the advantages and disadvantages are of having these constraints on the market.
It is important that students understand the implications for consumers, their living standards and purchasing power alongside the impact upon employers, government and the economy as a whole.
Whilst economic theory might suggest that a minimum wage or living wage, which is imposed above market rates, would lead to rising unemployment, it is worth considering why this might not actually be the case in the long run. There are, in fact, those who might argue the reverse is true. Since this is a highly topical area, it is worth carefully considering all possible outcomes of this market intervention.
The final topic in this section of the specification relates to wage discrimination. Students will be interested to know that, despite a narrowing in wage differentials between men and women’s wages, median men’s full time earnings currently exceed those of women by approximately 9%. This figure is an average and conceals some quite startling differences. The gender pay gap in some occupations can be as much as 50%. Moreover, there are many other variations in pay rates. The public sector tends to pay slightly less than the private sector for comparable jobs. There are considerable inter-regional differences in pay for similar occupations and finally, analysis of pay by ethnic group illustrates that there are again significant differences, but of course, there are many possible reasons for this and we must not assume that bias or prejudice is the only or full explanation.
Teachers can easily access relevant data from the ONS Annual Survey of Hours and Earnings. All this data can give rise to interesting debate and stimulate student interest. From here, you’ll be in a good position to approach a theoretical analysis of discrimination.
A good starting point is to pose the question – Does it matter that different groups may be paid differing wages? The answer to this, of course, is that discrimination is a cause of labour market failure and a source of inequity in the distribution of income and wealth and usually subject to government intervention. eg. The Equal Pay Act of 1970 and The Sex Discrimination Act of 1975.
Discriminatory treatment of minority groups leads to lower wages and reduced employment opportunities, including less training and fewer promotions. The result is that groups subject to discrimination earn less than they would otherwise have done and they suffer a fall in relative living standards. Students should be able, as with all previous analysis of the labour market, to draw relevant diagrams to illustrate the effects of discrimination. Ultimately these diagrams will focus on how employers may perceive that the groups discriminated against produce relatively lower levels of marginal revenue productivity.
In summary, this area of the specification can be made engaging for students by showing how it may relate to them when they enter employment. Issues such as trade union power, wage discrimination and the minimum wage can all lead to lively debate and this can be a productive precursor to teaching the economic theory that underpins labour markets.
Thank you for listening we hope you have found this podcast useful. For more helpful AQA resources, visit the AS and A-level Economics pages of our website, aqa.org.uk/economics