Labour Market | Model Answers
A-level Economics
This post is to help you with your knowledge on the labour market topic. Try and answer these questions yourself and then scroll down to the answers below.
Questions
1) List two ways that a government could reform pensions as the population ages.
2) How might changes to state subsidies for childcare affect the participation rate?
3) Briefly explain how income tax and benefits can affect the level of employment in an economy.
4) Give two benefits of the National Minimum Wage.
5) What is a living wage?
6) How can barriers to entry and exit in the labour market be a good thing?
7) Give 3 possible impacts of an ageing population on the labour market.
ANSWERS
1) List two ways that a government could reform pensions as the population ages.
Increasing the state retirement age
Decreasing the amount paid out
Increasing the amount people need to pay in via their NI contributions
2) How might changes to state subsidies for childcare affect the participation rate?
If the state subsidies childcare, it can incentivise parents to go to work instead of staying at home and looking after children. Parents on low incomes particularly struggle with affording childcare costs, so it would increase the number of those on lowest incomes in the workforce.
3) Briefly explain how income tax and benefits can affect the level of employment in an economy.
If income taxes are lowered, it should increase participation rates. More people should be willing and able to work as they get to keep more of their earned incomes. If benefits are lowered, it decreases the replacement ratio and decreases the chance of the unemployment trap – it would mean people are more likely to look for jobs as unemployment benefits become less desirable.
4) Give two benefits of the National Minimum Wage.
Provides an incentive to work – wages earned should be higher than under free market conditions where the wage could be lower.
Means that everybody has a minimum standard of living. Works to decrease inequality between lowest paid and highest paid.
5) What is a living wage?
The living wage is the wage needed to be earned by workers to cover their basic necessities.
6) How can barriers to entry and exit in the labour market be a good thing?
Certain jobs require qualifications and skill sets that are necessary to keep the labour force honest and credible. For example, training as a doctor takes 7 years and a qualification to practice medicine. If these barriers did not exist, there would be many unqualified doctors.
7) Give 3 possible impacts of an ageing population on the labour market.
Higher proportion of older people in the workforce.
Tax increases for employees to cover the increasing cost of pensions.
Wage increases for younger workers as they become scarcer.
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