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The Labour Market

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The Labour Market

The market for a factor of production - labour Refers to the demand for labour by employers and the supply of labour (provided by potential employees) Demand for labour is a derived demand - not wanted for its own sake but for what it can contribute to production

The demand for labour is dependent on the demand for the final product that labour produces.The greater the demand for office space the higher the demand for construction workers.
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The Labour Market

Demand for Labour Influenced by:
Cost of hiring labour Wages/salaries National Insurance contributions Pension contributions Administration costs associated with tax payments and adhering to employment laws and regulations
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The Labour Market

Demand closely linked with the value of the product produced by labour
e.g. 1 person produces 50 mugs per week, each mug sells for 2 each. Total value of output = 100 To be profitable the wage rate must not therefore exceed 100 per week

Marginal Revenue Product the addition to total revenue from the sale of one additional unit of output produced by the worker MPP = Marginal Physical Product the addition to total output produced by employing one extra or one fewer unit of labour

MRP = MPP x P

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The Labour Market

Wage Rate ( per week)

250

The demand for labour will shift The demand high if: At a relativelyfor labour At adownward 250 per wage ratewage rate the is lower of sloping Productivity of labour firm can afford toaddedon week,left to right take from the value increases worker The demand more workers. must be by the for labour iscover the which greater to inversely New machinery is used cost related to that wage of hiring the labour. increases productivity rate Demand is likely to be If there is an increase in the lower. demand for the good/service itself If the price of the good/service increases

100 DL Q1 Q3 Q2 Q4

DL1

Quantity of labour employed

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The Labour Market

Productivity: A measure of output per person per time period
Total Output Productivity = -------------------Quantity of Factor

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The Labour Market

Productivity
Not always easy to measure Influences costs output = potential revenue counterbalanced by wage costs Indicates efficiency Competitive advantage

Measuring productivity in service industries, especially the public sector can be difficult. How would you measure the productivity of a teacher?
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The Labour Market

Supply of Labour determined by:
Size and structure of the population age, gender, etc. Skill levels required Education and training
Number in higher education School leaving age Qualification types

Fashion Time period Opportunity cost of work income and substitution effects

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Wage Rate ( per hour)

The Labour Market

SL
In theS short L1 run, the supply of internet developers is very inelastic In the long run, as The shortage causes The demand for As people to is the wage rate train more businessesbe Assume this developers the per recognise at forced up to 75 a and qualify to for the market hour as rate benefits wage firmsof 30 potential compete become internet Internet for the skills of Web those per having anow Q2 of hour isthe the developers, developers short available. Inare still but there increase site, will the rate supply demandthe is initial is not for run there wage only Q1become their skills available and alsonew workers 30 time forper hour for elastic.the moreemployment.DA toincreases from come onto The shortage will fallthe to D1because of market wage rate develops. training time needed. back to a lower level.

75 50 30

DL Q1 Q3 Shortage Q2

DL1
Number Employed

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The Labour Market

The relative demand and supply of labour can help to explain differences in wage rates for different occupations
e.g. Supply of those able to train as nurses higher than those with the talent to be successful professional footballers, hence the higher wage rate of footballers! Nurses help care for people and save

lives, footballers entertain. One earns 90,000 per week, the other 350.

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The Labour Market

Other factors influencing wage differentials:
Status attached to the job Discrimination Race Gender Monopsony a dominant buyer in the market Sector public or private Trade Union power or influence Length of career Risk or danger involved Social or unsocial hours Shift patterns Productivity

Some jobs might attract a premium because of the danger or risk associated with carrying it out!
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