CHAPTER 3 ECONOMICS.docx

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Department
Woodsworth College Courses
Course
WDW101Y1
Professor
Lori Riznek
Semester
Fall

Description
CHAPTER 3 ECONOMICS, SOCIAL, AND POLITICAL ENVIRONMENTS *Canada’s Top Problem Is Filling Labour Shortage ” Within a decade or two, there simply will not be enough workers in the country” The supply of labour force is facing shortage due to the retirement of the baby boon generation and the low fertility rate, including current level of immigration. THE ECONOMIC CONTEXT MACROECONOMIC POLICY Great recession: a serious downturn in the economy around late 2008 characterized by very low or negative growth and high unemployment triggered by the financial collapse in 2007, the worst since the Great Depression of the 1930s. 5 elements in the Canadian government 2009 Action Plan 1. Action to help Canadians and stimulate spending: provide training and income tax relief 2. Action to stimulate housing construction: and encourage house ownership and enhance energy efficiency 3. Immediate action to build infrastructure 4. Actions to support business and communities: protect jobs and support sectoral adjustment 5. Action to improve access to financing and strengthening Canada’s financial system Macroeconomic policy ( a policy that applied to economy-wide goals, such as inflation, unemployment, and growth) with the respect to the liberalization of markets has been the most important single influence on IR. Almost all industries have been affected either directly through deregulation ( a policy designed to create more competition in an industry by allowing prices to be determined by market forces) or privatization ( the transfer or contracting out of services to the private sector) or indirectly through policies that promote free trade in goods and services, such as NAFTA (a free trade agreement between Canada, the U.S., and Mexico that has signed in 1994 and included a labour side agreement, the North America Agreement on Labour Cooperation). Globalization has resulted in greater mobility of capital and increase in the flow of goods and services and increase in worldwide competition between firms and nations. THE LABOUR MARKET >Elasticity of Supply and Demand Elasticity of supply/ demand: the labour responsiveness of supply/ demand caused by a change in the wage rate >Labour Power and Marshall’s Conditions The shape of demand curve is important because it influences a union’s ability to raise wages without significantly affecting employment level, which is known as wage-employment tradeoff. There are 4 theoretical conditions that determine the wage elasticity of labour by Marshall: 1. PRODUCT MARKET The more competitive the product market, the greater the employment impact of a wage increase and elasticity of demand of labour. When union increase wagesfirms in competitive market will reduce the cost by layoff workersthe demand for workers will reduceunion will gain less power Firms with certain degree of monopoly power tend to eliminate this situation by raising the price of product other than decrease the demand for labour The more inelastic the demand for labour, the lower the employment tradeoff from a wage increase and the greater the union power. Example: Canada Post to Outsource Call Centre Jobs 2. SUBSTITUTION EFFECT The easier an industry substitute capital for labour, the less power labour will have to raise wages. However, this is a long-term effect since technology change takes year and certain jobs are harder to substitute. 3. LABOUR INTENSITY Labour intensity refers to the degree to which labour costs account for production cost An industry is labour intense means labour costs are a high proportion costs. The smaller the proportion of labour cost, the smaller impact of employment when there is a wage increase, then the labour will have more power Labour will have more bargaining power in capital-intense firms since the firm can absorb a wage increase; unlike police and teachers (highly labour intense public services) will have less bargaining power 4. MARKET FOR SUBSTITUTES The more competitive the market for substitute factors of production is, the greater the bargaining power firms will have. The cheaper and more available these substitutes, the greater impact on employment, the greater the employer’s bargaining power. To summarize, demand is more inelastic and unions will have more power when  Product markets are less competitive  Hard to substitute labour for capital  Labour costs are a small proportion of total costs  The market for substitute is less competitive >Noneconomic Sources of Union Power Unions have successfully forged alliances with community groups to  Assist in organizing new members  Strengthen positions in bargaining  Support political lobbying campaigns  Oppose plant closures  Support strikes and other industrial actions SUPPLY OF LABOUR >Population and Immigration Labour-force growth is fuelled by population growth and immigration Female fertility rate has an important effect  Canada’s fertility rate is lower than the U.S., but close to the average rate of other industrialized countries Population growth relied more on international migration in Ontario There is a trend for births by older women WORK-LEISURE DECISIONS There are tradeoff choice between work and leisure due to the increase in wage and decrease in working hours. The slightly decrease in average annual hours indicates that the income effect is only slightly greater than the substitution effect. >Noncompetitive and Institutional Factors -NONCOMPETITIVE FACTORS Monopsony occurs when a firm is the sole market buyer of a good, service, or labour The firm is a wage setter; lower wages and employment levels Labour is assumed to be perfectly mobile, but there are several barriers to mobility. An individual tends to have a lower probability of moving because:  Home province had a large population  Language barrier  The person lived in a larger city  The person was older, married, or had a family  Provincial unemployment was low or there were low level of individual unemployment insurance or social assistance  The person was a prime-age male with low income -INSTITUTIONAL BARRIERS TO SUPPLY Applying Weber’s theory of social closure, research has shown that various occupations erect barriers to entry to restrict supply and thereby affect earnings. Lack of uniform licensing, inadequate training, and funding proble
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