Explain three reasons why labour markets may be imperfectly competitive
‘Although the wage differential has increased between top executives and other employees, the government cannot tell people what they should be paid. However, it should act where there has been market failure, because labour markets are not perfect.’ . Explain three reasons why labour markets may be imperfectly competitive Demand for labour is described as derived demand – this means that the demand for workers is dependent upon the demand for the output of the final product. In order for a labour market to be imperfectly comparative, there are distinct characteristics. In perfectly competitive markets workers are homogenous in their skills and we there is no power of monopsonys (geographical locations) to set the wage rate due to their power. However, in imperfect competitive markets, this is not the case as we see in perfect competitive labour markets, and the reasons for this is will be discussed. The labour market may be imperfectly competitive due to the role of the job which requires the workers. In an industry such as dustbin collecting, it can be argued that the labour market is imperfectly competitive due to the risks with dustbin collecting as it is not a pleasant job to work in. Therefore, there may be non-monetary factors that will influence the amount of people that are willing to work in a particular industry – these non-financial rewards also
Are there inherent problems with the idea of market failure?
Are there inherent problems with the idea of market failure? The concept of market failure was first introduced to explain the need for government intervention into certain markets and, according to Carl Dahlman, market failure “constitutes a normative judgement about the role of government and the ability of markets to establish mutually beneficial exchanges” (Dahlman, 1979). The theory of market failure is now prevalent amongst both academics and policymakers alike. Indeed, an Executive Order was issued by Ronald Reagan in 1981 which required that proposed regulations were only issued if their benefits exceeded their costs[1]. However, here lies one of the major problems with the use of market failure as a substitute for wider-ranging empirical analysis; many of the these costs and benefits cannot be quantified, such as the social impact of fairness or the environmental cost of pollution, and this therefore negates its use as a definitive benchmark to justify government intervention. The fundamental principal of cost-benefit analysis is that it “imposes mathematical discipline on agencies” (Posner, 2011). However, the element of subjectivity that is introduced, when these abstract factors are taken into account, means that the concept can be applied to almost any situation to justify intervention. This is shown when undertaking cost-benefit analysis where the
Did the privatisation of British Rail lead to an efficient outcome?
The privatisation of the railway network in the UK illustrates that competition and the free market lead to more efficient outcomes than the government ownership of ‘natural monopolies’. In some markets, such as natural resources and railway services, it can be more efficient to have small amount of suppliers or even one supplier only. The term Natural Monopoly comes to be used to refer a market where long-run average costs are lowest when output is produced by one firm. In these sorts of industries, the total fixed cost is majority of the total cost. Therefore, in the cost diagram, the Average Cost shape is like the Average total cost shape: sloping down. There is only economics of scale. As firms increase their size, average cost falls, benefiting both firms themselves and the whole society. This is a situation where one firm can supply the market at a lower price than two or more firms due to the existence of economics of scale and the avoidance of wasteful duplication. If these firms are in the private sector, as profit-maximisation is their goal, they are likely to charge very high price because in their knowledge, there will never be any competition. In the diagram, at the (profit-maximised) output, the price they sold (where AR cuts quantity output) is higher that average cost at that quantity output, generating Super Normal Profits. As a result, the market will
The General Strike 1926
The General Strike 1926 The origins of the general strike can be traced back as far as the demobilisation of British troops following the end of the Great War. For some years the nation was prosperous as women handed their jobs back to the men who returned. Britain sought to repair replace and build anew things which had been neglected between 1914 and 1918. Unfortunately this period of renewal was not to last, and as the demand for British goods was not as great as in the pre war period, the economy suffered. Millions of British workers were laid off as competition from abroad (many countries becoming self sufficient in various industries during the war) meant that Britain could not compete. By 1925 one quarter of British miners had been laid off. The denationalisation of the British staple industries encouraged much growth upon the stock exchange and investment from businessmen as profits soared. However for the working classes who kept them running, things were not so good. Many of the investors lost large sums of money when the stock market collapsed in 1921 and as an attempt to recoup their losses, industry owners began to decrease wages and increase hours worked. The pound fell in value as the government mistakenly set the price of sterling back against the 1914 price of gold. Prices rose because of shortages in supplies and imports, and many who were laid off had
