The labour market
The
labour market is determined by the forces of demand and supply.
The
demand for labour
- The
demand for labour comes from businesses because in order to produce goods
and services they need labour.
- The
demand curve for labour is determined by the combined behaviour of
individual businesses and their approach to employing workers.
- If
businesses intend to employ extra staff, they have to make sure that the
costs of employing this extra staff are lower than the extra revenue 717i811h they
generate.
- With
higher wages, companies will employ fewer employees.
Certain
factors can increase or decrease the demand for labour:
Changes in labour productivity -
if workers are able to improve their productivity, the business is more likely
to employ extra workers.
Demand for the product - the
demand for labour is a derived demand for the products or services that
businesses produce. For example a design company may employ extra workers as a
result of growing demand for promotions.
The
supply curve of labour shows the amount of labour which is supplied to the
market at a particular wage rate.
Individual
workers
- For
an individual worker the supply of labour is the number of hours that
he/she is prepared to work.
- As
the real wage rate rises, a worker is likely to want to work longer hours.
- The
real wage shows what the wage of the worker can actually buy, so it takes
into account the changes in prices of goods.
- Above
a certain real wage rate the number of hours worked will decrease.
Supply
to an industry
- The
higher the real wage rate is, the more workers are prepared to offer their
services to the labour market.
What
can lead to changes in the supply of workers to businesses?
- Improvements
in geographical mobility - businesses can attract new employees from other
parts of the country.
- Occupational
mobility - how easy it is to move from one type of job requiring certain
skills to another type of job requiring another skills.
- The
availability of training schemes
Total
supply depends on:
- Birth
and death rates
- Migration
- The
age distribution of the population
- The
number of people physically capable of working
Wage
and employment determination
- In
competitive labour markets the price of labour is determined by the
interaction of the demand curve for and the supply curve of labour.
- Equilibrium
price: the point at which the demand and supply intersect/meet.
Labour
market conditions and business
Different
conditions can influence the demand for and supply of labour:
- Government
intervention in the labour market - governments usually intervene in the
labour market in order to reach social aims, for example to ensure that
all employees are paid at least a minimum amount or to prevent
discrimination.
- Trade
unions and professional groups - these organizations' task is to protect
the interests of their members. They usually attempt to increase or
maintain the pay levels of their members. Their aim can be also to
restrict the supply to a particular market.
- The
amount of unemployment - at higher levels of unemployment businesses are
able to recruit from a larger pool of labour, and the increased supply may
force down the equilibrium rate. Labour shortages are likely to have the
opposite effect.
