The Labour Market

Page 1

THE DEMAND CURVE FOR LABOUR:

Wage rate - price of labour

Wage rate and demand inversely relatedde

Page 2

FACTOS AFFECTING THE DEMAND FOR LABOUR:

Derived demand - demand for labour derived from demand for goods and services

Cost and availability of substitutes for labour E.G. machinery

Productivity of labour - if worker able to produce more output, demand likely to increase because production profitable provided extra output can be sold

Other costs linked to employing labour E.G. recruitment and selection costs, sick pay, maternity pay, holiday pay, etc.

Page 3

SUPPLY CURVE FOR LABOUR:

Wage and quantity of labour proportional

If wage rates rise, more people available for work

Page 4

FACTORS AFFECTING THE SUPPLY OF LABOUR:

Changes in school leaving age or retirement age

Role of women - more females now opted to work and pursue careers - increased size of working population

Age distribution of overall population of country - if more people over, say 65, proportional of total population increases so dependency ratios rise (proportion of dependents to workers)

Number of immigrants - many countries welcome immigrants to increase working population

Page 5

WAGE DETERMINATION:

Determined by interaction of supply and demand for labour

Equilibrium wage - supply and demand for labour equal

Page 6

WAGE DIFFERENCES BETWEEN DIFFERENT OCCUPATIONS:

Skill - greater supply of workers in jobs which require no skill, training, expertise

Jobs requiring sill E.G lawyers will have lower supply

Risk - E.G. bomb disposal, deep-sea diving are dangerous and unpleasant

Supply of workers less so wages higher

Industry - higher wages in expanding industries

Demand for labour in expanding industry greater so wages forced up

Falling demand for labour in declining industries so lower wages

Sector - wages in public sector tend to be lower than private

Public sector jobs more secure an other benefits E.G. pensions which compensate for lower wages

TU - workers in TU may get higher wages than those who aren't

Qualifications and Training - employers want literate, numerate people with specialist skills

If labour supply educated and trained, more productive, more efficient

Responsibility for education and training divided between state and firms so investment needed by them in education