Category: Essential Economics for Business: Ch 08

The rapid growth in the use of overseas and agency staff for many lower paid jobs has been a contentious issue for many in the trade union movement. Unions have demanded the same rights for agency staff as for permanent staff, but the government is reluctant to do this, arguing that the use of agency staff encourages flexibility in the workforce.

Underpaid, easy to sack: UK’s second class workforce Guardian (24/9/07)


1. Explain the impact that the use of agency staff has on the supply curve for labour. (N.B. You should consider both the position and shape of the curve in your answer.)
2. Discuss the government’s view that “the flexibility provided by agency workers has been a vital part of Britain’s economic success“.
3. Discuss the impact on the UK labour market of giving agency staff the same employment rights as permanent staff.

The UK and global labour markets are changing significantly. In the UK we have faced a level of immigration of around 500 – 600 thousand people (the government does not know the exact figure), while in the global economy the International Monetary Fund (IMF) has estimated in its latest World Economic Outlook that the global labour force has quadrupled in the last quarter of a century. So what is the impact on the UK labour market? Many assume that the effect is negative, but as is always the way with these things, you will find plenty of economists who will argue the opposite. The article below from the Times Online looks at these national and global issues.

Workers count cost of a global labour flood Times Online (29/4/07)
Migrants create job market slack Times Online (20/5/07)

1. Using diagrams as appropriate assess the impact of recent immigration on the UK labour market.
2. Discuss the extent to which changes in the global labour force and UK immigration have affected the level of wages in the UK labour market.
3. Discuss the extent to which the global labour force is likely to change in the next decade.

During the period that Mrs Thatcher was in office, the post-war trend towards greater equality of income was reversed. Although some of the changes the Labour government has made since 1997 have helped those on lower incomes, the rise in incomes at the top of the scale has meant that the gap between rich and poor has widened again. The article below from the Guardian looks at the latest figures on income inequality.

Inequality at same level as under Thatcher Guardian (18/5/07)

1. Define the terms (a) Lorenz curve and (b) Gini coefficient.
2. Given the changes in income distribution outlined in the article, discuss how the value of the Gini coefficient has changed since 1997.
3. Draw Lorenz curves to show the changes that have taken place in income distribution during Mrs Thatcher’s period in office and during Tony Blair’s time in office.
4. Analyse two policies that the government could introduce to reverse these income distribution trends.

The national minimum wage will rise again in October 2007 by about 3% from £5.35 to £5.52. However, the Work Foundation has warned that the effectiveness of the minimum wage may be at its limits and that further rises in its level may not have the desired impact in terms of addressing inequality. The articles and press release below consider these issues.

Minimum wage up to £5.52 per year BBC News Online (7/3/07)
National minimum wage at the limits of its effectiveness The Work Foundation – press release (6/3/07)
Warning over minimum wage level BBC News Online (6/3/07)


1. Using diagrams as appropriate, illustrate the likely impact on the UK labour market of the proposed increase in the national minimum wage from October 2007.
2. Assess the arguments given by the Work Foundation that the minimum wage is reaching the limits of its effectiveness.
3. Evaluate two methods other than a national minimum wage for reducing levels of both relative and absolute poverty.

As part of its Target 2.0 competition for students, The Times published a series of briefings looking at the factors that cause inflation. The one linked below considers the role of labour markets in determining inflation.

Interplay of work and inflation rate Times Online (2/2/07)


1. Explain the key determinants of the equilibrium level of wages in the labour market.
2. Assess the role of equilibrium labour market wages in the determination of the level of inflation.
3. Discuss the extent to which the NAIRU is still a relevant theory when considering the determinants of inflation.