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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 a relatively high The demand for labour if: At At a lower wage rate the wage rate of 250 per is downward sloping Productivity of labour firm can afford toadded take on week, the value from left to right increases more workers. demand by the worker The must be for labour is inversely greater to cover the cost New machinery is used which related to the wage rate of hiring that labour. increases productivity 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 As businesses demand for the wage rate to be more people train Assume this is developers recognise the atfor a forced up to to 75 per and qualify the market hour as rate firms compete wage potential benefits of 30 become internet Internet for the skills those per of having hour isof a now Web Q2 developers, the developers short the available. In the but site, there demand are rate still for supply will initial wage run there is increase not the is only their Q1 skills available and also become 30 hour time forper new workers for increases employment. from more elastic. The DA to come onto the shortage to D1 develops. market because of the wage rate will fall 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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