Labour Market Constraints LMCs result in disequilibrium in the labour market LMCs result in disequilibrium in the labour market They prevent the labour market from clearing (where SL = DL) They prevent the labour market from clearing (where SL = DL)

Examples Minimum Wage Legislation Minimum Wage Legislation Strong Unions Strong Unions Societies perception of a jobs worth Societies perception of a jobs worth

Why do LMCs lead to disequilibrium? Eg Minimum wage: if the Government thinks the equilibrium wage is too low then they may set a minimum wage above We to ensure everyone receives a satisfactory level of income. Eg Minimum wage: if the Government thinks the equilibrium wage is too low then they may set a minimum wage above We to ensure everyone receives a satisfactory level of income. However, Supply > Demand for labour so disequilibrium will occur However, Supply > Demand for labour so disequilibrium will occur

Eg Strong unions: they may have the power to negotiate high wages above the equilibrium. Eg Strong unions: they may have the power to negotiate high wages above the equilibrium. SL > DL disequilibrium occurs SL > DL disequilibrium occurs Sticky Wages: inability of wages to fall Sticky Wages: inability of wages to fall

Effect of LMCs on labour market Employment decreases as firms cant afford to hire as many workers with higher wages Employment decreases as firms cant afford to hire as many workers with higher wages Voluntary unemployment decreases as the incentive to give up leisure time is greater with higher wages Voluntary unemployment decreases as the incentive to give up leisure time is greater with higher wages Involuntary unemployment increases as more people will be looking for work but there are less jobs available Involuntary unemployment increases as more people will be looking for work but there are less jobs available