5-The Labour Mkt

7/27/2019 5-The Labour Mkt

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labor market - the market in whichworkers compete for jobs and

employers compete for workers



Labour markets function through theinteraction of workers and employers.

Labour economics looks at the suppliers of laborservices (workers),

the demands of labour services (employers),and attempts to understand the resulting pattern

of wages, employment, and income.



Wage is a basic compensation forpaid labour, and the compensation

for labour per period of time isreferred to as the wage rate .



The Labour Market

• Refers to the demand forlabour – by employers andthe supply of labour(provided by potentialemployees)

• Demand for labour is a

derived demand - not wantedfor its own sake but for whatit can contribute toproduction

The demand for labour isdependent on the demand forthe final product that labourproduces. The greater thedemand for office space thehigher the demand forconstruction workers.



Demand for Labour

Influenced by: – Cost of hiring labour – Wages/salaries – National Insurance contributions – Pension contributions –

Administration costs associated with taxpayments and adhering to employmentlaws and regulations



- Productivity:- A measure of output per person per time

periodTotal Output

Productivity = --------------------

Quantity of Factor



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



• The relative demand and supply of labour can

help to explain differences in wage rates fordifferent 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 wagerate of footballers!

Nurses help care for peopleand save lives, footballersentertain. One earns RS-90,000 per day, the other Rs-350.



• Other factors influencing wagedifferentials:

– Status attached to the job –

Discrimination – Race – Gender – Sector – public or private –

Trade Union power orinfluence – Length of career – Risk or danger involved –

Social or unsocial hours – Shift patterns – Productivity

Some jobs might attract apremium because of thedanger or risk associatedwith carrying it out!

http://www.sxc.hu/browse.phtml?f=download&id=106083





Macro and micro analysis of labour

markets • Microeconomic techniques study the role of

individuals and individual firms in the labourmarket.

•

Macroeconomic techniques look at theinterrelations between the labour market, thegoods market, the money market, and the foreigntrade market. It looks at how these interactions

influence macro variables such as employmentlevels, aggregate income and Gross DomesticProduct.



The macroeconomics of labourmarkets

• The labour force is defined as the number of individuals age 16 and over, who are either employedor actively looking for work.

• The participation rate is the number of people in thelabour force divided by the population of working agethat is not institutionalized.

• The non-labour force includes those who are notlooking for work, those who are institutionalized suchas in prisons or psychiatric wards, stay-at homespouses, children, and those serving in the military.



• The unemployment level is defined as the labourforce minus the number of people currentlyemployed.

•

The unemployment rate is defined as the level of unemployment divided by the labour force.• The employment rate is defined as the number

of people currently employed divided by theadult population , here self-employed people arecounted as employed.

http://en.wikipedia.org/wiki/Unemployment

http://en.wikipedia.org/wiki/Unemployment



several types of unemployment are-

• Frictional unemployment — This reflects the factthat it takes time for people to find and settleinto new jobs.

• If 12 individuals each take one month beforethey start a new job, the aggregateunemployment statistics will record this as asingle unemployed worker.

• Technological advancement often reducesfrictional unemployment, for example: internetsearch engines have reduced the cost and timeassociated with locating employment.



• Structural unemployment — This reflects a mismatchbetween the skills and other attributes of the labour

force and those demanded by employers.• If 4 workers each take six months off to re-train before

they start a new job, the aggregate unemploymentstatistics will record this as two unemployed workers.

•

Rapid industry changes of a technical and/or economicnature will usually increase levels of structuralunemployment, for example: widespreadimplementation of new machinery or software willrequire future employees to be trained in this areabefore seeking employment.



• Natural rate of unemployment — This is thesummation of frictional and structural

unemployment, that excludes cyclicalcontributions of unemployment e.g. recessions.• It is the lowest rate of unemployment that a

stable economy can expect to achieve, seeing assome frictional and structural unemployment isinevitable.

• Economists do not agree on the natural rate,with estimates ranging from 1% to 5%. Theestimated rate varies from country to countryand from time to time.



Demand deficient unemployment

Any level of unemployment

beyond the natural rate is mostlikely due to insufficient demand in

the overall economy.



Neoclassical microeconomics of labour

markets

Neo-classical economists view the labour

market as similar to other markets in that theforces of supply and demand jointlydetermine price (in this case the wage rate)and quantity (in this case the number of people employed).

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The labour market differs from other markets inseveral ways.

• most important of these differences is the

function of supply and demand in setting priceand quantity.• In markets for goods, if the price is high there is a

tendency in the long run for more goods to beproduced until the demand is satisfied.

• With labour, overall supply cannot effectively bemanufactured because people have a limitedamount of time in the day, and people are notmanufactured.

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5-The Labour Mkt