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The interaction of labour markets

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Question 2

An economy experiences the following changes in its labour market:

  • Average nominal wages rise by 3%
  • Non-wage labour costs (such as employers' pension contributions) rise by 1%
  • Labour productivity (output per worker) increases by 5.5%

Assuming wage and productivity levels in competitor nations remain unchanged, which of the following is the most likely outcome for this economy's unit labour costs (ULCs) and its international competitiveness?

A

Unit labour costs will rise by approximately 4%4\%4%, leading to a deterioration in international competitiveness.

B

Unit labour costs will fall, leading to an improvement in international competitiveness.

C

Unit labour costs will rise because the increase in non-wage labour costs automatically raises the marginal cost of labour.

D

Unit labour costs will remain unchanged because productivity gains are offset by wage and non-wage cost pressures.

Markscheme

The interaction of labour markets Questions

  1. A Level
  2. /Economics
  3. /The interaction of labour markets

13 exam-style questions on OCR A Level Economics The interaction of labour markets. Each one has a worked solution and a mark scheme showing where the marks go.

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