z
Labour Market
z
Demand for Labour
Derived demand: demand for labour depends on
the demand for the output they produce
Example:
• Demand for steelworkers increases if there’s
more demand for steel products.
• More demand for houses; more demand for
construction workers (carpenters etc.)
z
Supply of labour
Higher wage rates lead to workers willing to work
more hours.
(normal supply curve)
However, at a certain point wage has reached a
point that workers are satisfied and choose to
relax, even though, the wage rises.
(Backward bending supply curve page 112)
Market
wage
z
The market wage is the equilibrium price for
labour.
Where supply of labour = demand for labour.
Factors zaffecting
supply and demand for Labour
Demand
Demand for
goods/services
Productivity
Supply
Net advantage of an
occupation
Provision and quality of
education and training
Price and productivity of Demographic
Capital
(population) changes
Non-wage employment
costs (other production
costs)
z
Wage differentials
Why does a CEO of a big firm earn more than a
cleaner?
What would happen if everyone gets the same
wage, no matter what function you have?
Wage differentials
z
Explain the differences
Wage
rate (€)
Surgeon
Wage
rate (€)
Secretary
S
S
25,000
150,00
0
D
D
Q
Qty of
labour
Q
Qty of
labour
Factors affecting wage rate
z
Relative bargaining power
• Trade union (next chapter): If a trade union is
more powerful they can bargain for higher
wages
• Age/Experience: Older workers are more
experienced and hence can ask for higher
wages
• Level of education: Higher education can give
more power to starting workers to ask higher
wages
Minimum Wage
z
Government can set a minimum wage to support low
income households and to prevent exploitation by
firms who want to keep production costs low.
Benefits:
• Workers receive a fair income in order to survive
and afford the basic necessities
• Workers who were not looking for a job because the
wage was too low are now encouraged to look for a
job
• Low income households have more money to spend
which may cause more economic growth (Term
2&3)
Minimumz Wage
Disadvantages:
• Higher production costs for firms
• Firms may have to increase prices and this may
cause inflation
• Oversupply of workers; Firms may be reluctant to
hire more workers at higher wages and may even
fire workers to lower production costs hence
creating more unemployment
Minimum wage
P
RESULT: EXCESS SUPPLY/SURPLUS
S
P MIN
Income may be too low for lowincome groups to survive
Pe
D
0
Qd
Q
Qs
Q
Wage Differentials
z
Skilled vs Unskilled: Skilled workers have higher
productivity and what they produce (output) has
more value. Supply of skilled workers is also lower
Public vs Private sector: Basic Pay in Public
Sector is higher but Total Earnings in Private
Sector is often higher because of bonuses and
overtime
Gender/Race
Wage differentials
z
Reasons for gender wage gap:
• Women work shorter period of their life than
men
• Women work more often part-time jobs
• Discrimination/Racism
Wage differentials
z
Agriculture vs Manufacturing vs Service Jobs
Derived demand influences heavily the wage
rate for workers.
Demand for skilled Manufacturing or Service
jobs is higher than Agricultural jobs hence wages
in these industries are higher.
Age: Older works paid more than younger
workers due to:
• More experience and better skills
• Hierarchy (older workers are often higher
ranked than younger workers)
• Need for higher earning due to living costs
z to chose low-paid jobs
Reasons
• Job satisfaction
• Comfortable working conditions:
• Nice colleagues/manager
• Short home-work travel distance
• Easy working hours
• Simplicity of job
• No choice/Necessity
Changes in Wage rate
z
How are wages determined?
Do wages change?
What would happen to wages in case of an Economic
Crisis? Why?
Show this in a wage diagram.
Wage
rate (€)
S
W
W1
Q1 Q
D
1
D
Qty of
labour
Questions
z
Write down these questions and answer them.
In each case show a demand and supply curve
diagram to explain what happened to the
market wage. Show diagram + explanation.
1. More demand for the output produced by
the workers.
2. Population decreases due to massemigration.
3. Costs of raw materials rise.
4. Capital (machines) becomes cheaper and
more efficient.
5. Workers are required to work longer hours.