Topic 9: POPULATION AND LABOUR:

Sub-Topic 1: Population

Population refers to the total number of people in given area within a specified period of time.

OR: Population refers to the number of people who live in a country at a given time including
temporary and permanent residents.

CONCEPTS RELATED POPULATION:

1. Population census
This refers to the physical counting/enumeration of people living in a country within a
specific period of time, normally after ten years.
NB: Census period depends on government policy.
The following aspects are obtained from the population census,
 The total size (number) of people living in the country
 Population distribution and density i.e. the number of people per unit area of land e.g. per
sq km.
 Age distribution.
 Birth rate and death rate (Natural population growth rate).
 The size of the labour force and the number of dependants.
 Quality of the population (the level of Education).
 Migration (internal and international).
 Sex composition (males against females).
 Marital status i.e. marriages, separations and Divorce.
 Ethnic composition of the population.
 Income level of the population.
 Occupation composition of the population.
 Religious composition of the population.

REASONS FOR CARRYING OUT POPULATION CENSUS:

 To establish the correct size of people living in the country. This enables the government
to find out whether there is optimum population, over population, or under population in
relation to the available resources.
 To establish natural growth rate (the birth rate and death rate). This helps the
government to take up appropriate population policies / measures.
 To determine the quality of the population/level of education. This helps the government
in proper manpower planning.
 To determine how population is distributed in different regions. This helps the
government in provision or distribution of basic infrastructure.

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 To establish the size of labour force and the number of dependants. The census reveals
the number of young people, active population and the ageing population hence the number
of people who can be productively employed.
 To determine the per capita income. This helps in determining the standards of living of
people living in the country.
 To establish the rate of migration. This helps to establish artificial population growth in the
country which is important for security reasons and planning.
 To determine administrative units and political representation. E.g. demarcating
constituencies in the national assembly.
 To solicit for foreign aid from international agencies.
 To ascertain the population structure in terms of age,

2. Demography: This is the statistical study of human population, including the study of the
population size, structure and its distribution, spatial and/or temporal (over time) changes in
population in response to birth, migration, ageing, and death

The importance of population statistics:

 Population statistics indicate the level of employment and unemployment of labour in a
country so that the government can make appropriate plans to solve the unemployment
problem.
 The population statistics help the government to effectively budget for the population by
showing the revenue potential by way of presenting the economic activities people
engage in, and show population needs by indicating the level of access to services and
basic needs of the population in the different sectors and regions of the country.
 With the help of the population statistics, the government is able to estimate the level of
need for social services in the economy.
 Population statistics are used to determine the standard of living in the country by making
it possible to calculate the income per person, derived by dividing national income by the
total population.
 Population density and composition statistics enable government to determine the labour
potential of the economy by indicating the percentage of the population below the
retirement age brackets.
 Population statistics help government to formulate an effective population policy that
requires reliable population statistics.
 Economies use the Population statistics to measure the country’s population growth rate.
Population growth rate is the rate of change of the population over time.
 Population statistics help to predict the trend of population growth rate of a country over
time. This enables government to project economic growth rate of the country. Economic
growth is measured as an increase in the GNP per capita (GNP/total population)
 Population statistics show the size of labour force and the number of dependents in the
economy.
 Population statistics show the sex composition of a country.

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  Population statistics show other information relating to the population such as marital
status, mortality rate, birth rate, fertility rate and others.
 Economies use Population statistics to measure the size of the current market and market
potential for goods and services in an economy, a big population indicates a big market
potential while a small population is an indicator of a small market potential.
 The population statistics shows the quality of the population measured in terms of
literacy level, employment, health standards, and the like.
 Population figures are used to calculate the dependence ratio of the country

Trend of Uganda’s population census

YEAR TOTAL
POPULATION
(Millions)
1911 2.4
1921 2.8
1931 3.5
1948 4.9
1959 6.5
1969 9.5
1980 12.5
1991 16.6
2002 24.6
2014 34.6

3. The Population growth rate: This is the rate at which the population size of an area or
country is changing overtime.
Population growth rate is normally expressed as a percentage

Mathematically population growth rate = Birthrate – Death rate X 100

1000
(a) The natural population growth rate: This is the change in population due to the
difference between the birth and death rates of the country’s population (in a year).
The natural growth rate is calculated per annum relating to the number of
live births and the number of deaths recorded to the total population.
Example 1; if to a group of 1000 people, only 20 people died and 40 babies are born in the
same year;

Then the population growth rate = 40 – 20 X100 % = 2%

1000
Therefore P.G.R = 2% per annum.

So if the population increases due to natural growth rate there is a possibility that;

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  Birth rate is higher than the death rate.
 Death rate is reducing while birth rate remains constant.
 The death rate is declining while birth rate is increasing

(b) The artificial population growth rate: this is the change in population due to changes
in net migration of people in an area.
NOTE:
(i) Immigration. This is the movement of non- native people into a country in order to
settle there.
(ii) Emigration. This is the act of leaving one’s country to settle permanently in another
country.
(iii) Net Migration rate. This is the difference between the number of immigrants
(people coming into a country) and the number of emigrants (people leaving the country)
throughout the year
OR: The rate of people moving into a country less the number of people moving out of
the same country.

(C)The Birth rate (Crude birth rate) : This is the number of live births in a year per 1000
people in a given region. If the birth rate increases, other factors remaining constant, results in an
increase in the population growth rate, while a relative fall in the birth rate causes a decline in the
growth rate.
The factors that influence birth rate:
1. Fertility rate. This is the average number of births per 1000 women in a country or region. It
measures the number of children an average woman can bear in her reproductive life. The extent
to which birth control is practiced in a society largely determines the country’s fertility rate.
Fertility rate is much higher in developing countries (about 6.5%) and on average, the fertility
rate in developed countries is about 1%.Fertility rate in developing countries is observed to vary
between urban areas and rural areas; it is higher in rural areas than in the urban areas.
Note: The Replacement level fertility is the level of fertility at which a couple has only enough
children to replace themselves, that is, about two children per couple.

The causes of high fertility rate in developing countries include:

 The culture that puts value to having many children.
 Religion that encourages having many children or discourages the use of artificial family
planning methods
 The absence of family planning services in developing countries.
 Majority of people are ignorant about family planning.
 The low Education levels in developing economies.
 There is low level of employment among women that they are not constrained to give birth to
and raise children as working women are.
2. The proportion of women that gets married. High proportion of women that gets married
results in high birth rate due to the large number of children being born by a large number of
women whereas low proportion of women getting married leads to a low birth rate.

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3. The average age at which people are allowed to marry (age of consent) influences the
number of children an average family can have. The lower it is the higher the birth rate and the
higher the age of consent the lower the birth rate.
4. The status of women in society. Women emancipation enables them to have a say in the
number of children they desire to have, usually desire fewer children which results in a low birth
rate than in the case where they are not liberated from male domination and discrimination,
which forces the women to have as many children as possible resulting in high birth rate.
5. The sex ratio. Where the number (percentage) of women is greater than that of men, the birth
rate tends to be higher than when there are fewer women in the society than the men because the
number of children born is much higher in case of many women and fewer children due to few
women.
6. The education level of women. The demand for children tends be to low among educated
women, which leads to a low birth rate, whereas the demand for children is high among the
uneducated women which results in a high birth rate.

7. Government population policy. A government policy that encourages large families, leads to
a high birth rate because the families are encouraged to have more children, on the other hand
government policy that discourages large families forces them to have fewer children, which
results in a low birth rate.

8. Customs and religious beliefs. Some customs or religion do not encourage family planning,
others promote polygamy, hence having many children per family which results into high birth
rate.

9. The willingness to bear children. The birth rate is high in societies whose people are willing
to bear many children, as is the case in most societies in developing countries, but the birth rate
is low in societies whose people are not willing to bear children, as is the case in the developed
countries

(d)The death rate (Crude death rate): This is the number of deaths in a year per 1000 of the
population.

Note: When the death rate increases, other factors remaining constant, the rate of population
growth declines.
(i)Mortality rate. This is the number of people who die per a thousand in a given area before
their life expectancy.
(ii) Infant mortality rate: This is the number of children who die before the age of one year for
every a thousand children born.
(iii)Child mortality: This is the number of children who die before the age of five years for
every a thousand children born.
The factors that influence the death rate:
 The frequency and magnitude at which natural disasters occur that cause death.
 Wars and insecurity
 Nutritional factors
 The level of public health facilities that is available to the public

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 (4) The Population explosion:

This is a situation where there is a sudden increase in the population size compared to the
availability of resources to support that population.

A population explosion comes about due to factors that result in high population size in an
economy such as;
 The low level of education of the majority of women in developing countries raises the
fertility rate leading to high birth rate, which results in a high population growth rate.
 Improvement in the living conditions increases the demand for children and bigger families.
 The Customs and traditions that favour polygamy and related practices lead to large families.
 Better medical facilities reduce death rate relative to the birth rate.
 More enlightenment through public health programmes which helps to improve health
standard hence reducing mortality rate.
 The improvement in hygienic conditions helps to reduce mortality rate.
 The high level of promiscuity and moral degradation raise the rate of pregnancy and
childbirth outside marriage hence increasing the overall population growth rate.
 The negative attitude towards family planning leads to high fertility rate and large families.

5. DEPENDENCE RATIO: This is the fraction of the dependent population to the working
population in a given country.

OR: It is the ratio of the non-working age group to the working age group.
It is given by the following formula:

Dependence ratio = Number of dependants X100

Labour force

OR: = The number of working age group X100

Non Working age group

Question: (i) Given that the working population in a country is 12,000,000 the young population
is 14,000,000 and the elderly population is 4,000,000; calculate the country’s
dependency ratio.

Unproductive populatio 뽲
(i) × 100
Total po屭 ulation
14 m+ 4 m
=
30 m
= 3:5 / 60%
(18:30)

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 OR
Unproductive p 捦 pulation
× 100
Economically acti 杮 e popula 潭〱 on
14 m+ 4 m
¿
12m
¿ 3 :2/150 % / (18:12)

Note: The dependence burden: This is the proportion of the total population of ages o-15 years
and 64 years and above which is economically unproductive and not counted in the labour force.

6. HIDDEN MOMENTAMUM OF POPULATION GROWTH: This refers to a dynamic

latent process of population increase that continues even after a fall in birth rates because of a
large youthful population that widens the population’s parent base.

7. LIFE EXPECTANCY: This is the average number of years a person is expected to live after
birth (i.e. 35-45 years for developing countries and 62-65 years for developed countries: Michael
P. Todaro).

Life expectancy is influenced by the following factors:

 Sex or gender of a person.
 Level of income of individuals.
 Housing and nutritional standards.
 Sanitation and public health

7. Population density. Population density refers to the number of people/inhabitants per unit
area of land, for example per square kilometer.

THE STRCTURE OF UGANDA’S POPULATION:

Population structure is the makeup (composition or nature) of a population in terms of its;

 Geographical distribution
 Age composition
 Sex composition
 Occupational distribution
 Population growth rate
 Educational distribution

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DESCRIPTION OF THE STRUCTURE OF UGANDA’S POPULATION:

 It is dominated by the young who constitute over 40% of the population

 Females are more than males where females are about 51% and the males are about
49 %.
 The population is mainly rural based, with approximately 80% of the population
living in rural areas.
 Majority of the population are semi-skilled and/or unskilled
 It is characterised by high illiteracy rates of about 32%
 The productive force of the population are mainly engaged in primary production
 It is characterised by high annual growth rate of about 3%.
 A big proportion of the population lives below the international poverty line.
 There is uneven spatial distribution of the population

IMPLICATIONS OF UGANDA’S POPULATION STRUCTURE:

POSITIVE IMPLICATIONS OF THE POPULATION STRUCTURE IN

UGANDA:

 High market potential. It increases the market potential in the economy because,
overtime, the big proportion of the population evolves into a working population
that is able to offer effective demand for goods and services in the economy
 High potential for labour force. It increases the labour potential of the country.
Uganda’s population has an age structure comprising of a big proportion of
young people who will join the labour force in the near future
 An incentive/potential for massive future investment. It stimulates investment
because of increased consumer demand arising from an increasing population
 High tax potential. . An increasing population brings about greater tax revenue
arising from taxing a bigger and increasing working population
 Initiates efforts to work harder to sustain the predominantly dependent
population. The few employed people are compelled to work harder in order to
sustain the many dependants they take care of, since a big proportion of the
populations are young.
 Government is awakened to its responsibility of providing the necessary
infrastructure. It increases pressure on development effort of government,
because it awakens the government to undertake measures to cater for the
increasing population such as availing more social services that lead to
development of the economy.
 Encourages labour mobility. This is because the young make the majority of the
population who are more willing to move from one job or geographical location
to another which is not the case with the ageing population.
 High potential for increased resource utilisation. The high population growth
results into a high level of domestic resource exploitation in the economy which
helps to put to use the resources that would otherwise be idle to meet the high and
increasing demand for goods and services as the population increases.

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 The young are usually innovative and inventive/promote creativity/room for
potential invention. This is because a bigger proportion of the population is
young who are more innovative than the aged.
 Reduces per capita social over head costs. The cost of providing social services
such as health services, education etc reduces because once they are established
they are utilised by the increasing population in the areas where they are set up.

NEGATIVE IMPLICATIONS OF UGANDA’S POPULATION

STRUCTURE:
 Low labour productivity. This is because the majority of the population is semi-
skilled and/or unskilled.
 It leads high dependence burden. This is because the small working
population and government have to sustain the high percentage of the young
people.
 Results into unemployment and under employment. This is due to the shortage
of co operant factors due to excessive supply of labour arising from high
population growth rate.
 Low effective demand/Limited domestic markets. This because a big
proportion of the population live below the international poverty line.
 Leads to external resource dependence e.g. on foreign manpower. This is so
because of high rates of illiteracy and the majority of the population are semi-
skilled and/or unskilled, necessitating use of expatriate man power in some
sectors of the economy
 Leads to balance of payment problems This is due to high import requirements
to supplement domestic supply. This is due to excessive expenditure of foreign
exchange abroad on imports arising from high level of importation to sustain a
large population
 The available infrastructure is over strained. A high population growth rate
increases pressure and strain on the existing infrastructure due to overuse of the
available facilities by the high and increasing population that surpasses the
capacity of the existing facilities
 Effective planning for population becomes difficult. This is because it is
characterised by high annual population growth rate leading sharp and rapid
population increase making it hard for the government to effectively plan for such
population.
 High government expenditure on provision of social services. This is due to
the excessive demand for social services by the high and rising population that
necessitates high and increasing government expenditure on social services.
 High social costs in form of pollution e.g. congestion. This is because a large
and increasing number of people share the limited social infrastructure in the
economy that results into overcrowding, overuse of facilities like toilets and
sewerage systems.
 Results into brain drain. The high unemployment and low incomes due high
population force many skilled workers to move to other countries to seek
employment and better pay

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 High rate of rural urban migration and its related evils. This is due to the
high pressure on land and declining resources in the rural areas arising from the
high population growth rate that forces people to move from rural areas to urban
areas in search of jobs and better standards of living.
 Perpetuates/causes income inequality. This is because the majority of the
population becomes poorer due to a reduction in income per person as the
population size increases.
 Exerts pressure on land. This is because the population is mainly rural-based,
with approximately 80% of the population living in rural areas and especially in
those areas which are densely populated such as Mbale, Kabale etc.This has
resulted into conflicts.
 Leads to quick depletion of resources due to over exploitation. This is due to
the high demand for resources to cater for the needs of a high population.
 Leads/increases/worsens debt burden. The high population growth rate and
dominancy of the population by the young necessitates borrowing by the
government in order to provide social services to such rapidly increasing
population, this results into heavy debt burden.

THE CONCEPT OF UNDER POPULATION:

Under population refers to a population size that supplies insufficient labour force
relative the existing co operant factors leading to low average output/income per
capita.
Therefore, in order to realise maximum utilisation of the existing resources, there
should be an increase in size of population.
The causes of under population:
 High death rate
 Drastic decline in birth rate
 Drastic decline in the fertility rate
 Displacement of people due to wars

Disadvantages of under population:

 Limited small market size for goods and services in the economy due to the
relatively small population size, which results into low level of investment in the
economy.
 Limited labour supply due to the small population size, which encourages the use
of expatriates.
 Low output due to the small market size for goods and services leads to low rate
of economic growth of the economy
 Low tax revenue realised because of a small population that provides only a small
tax base.
 Low level of innovations and inventions because people are satisfied by the
existing levels of growth, this ultimately result into economic stagnation
 Under utilisation of natural resources in the economy as some remain idle, this
brings about low income.

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  High overhead social capital. There are high average costs of development of
infrastructure since the population is low
 Discourages investment. There is low level of investment due to low level of
income in the economy.

Possible measures to overcome under population and associated problems:

 The government can put in place fiscal incentives to big families to encourage
people to have more children to have a bigger population that can effectively
utilise the available resources and increase the level of national income.
 Increase training of labour to obtain skills to increase the level of average product
in the economy towards attaining an optimum population.
 The government can relax immigration laws to encourage more people to come
into the country in order to raise the labour force in the country.
 Increase the level of technology in the country to boast labour productivity
towards attaining an optimum population.
 Improve the political climate to increase the level of investment and economic
activities to increase labour productivity.
 The government should offer other incentives like free or subsidised healthcare,
free, or subsidised education, and other Child benefits.

THE CONCEPT OF OVER POPULATION:

Over population is the population size where there are more people than the
resources can sustain resulting in fall in average product as the population grows.
OR: It is the population size where output per person falls as the population increases.

NEGATIVE IMPLICATIONS OF OVER POPULATION:

 Leads to high levels of unemployment and under employment in the economy. This
is because it creates excessive supply of labour hence the rate of job seekers exceeds the
rate of job creation or existing jobs leaving many unemployed. It also leads to shortage of
land to engage people in active production thereby leading to under employment.
 Available infrastructure is over strained. The available infrastructure like hospitals,
schools, roads, etc needed to support the population becomes inadequate compared to the
number of the population hence leading to the high rate of depreciation and over
exploitation.
 Leads to high dependency burden leading to low savings. It increases the number of
dependants of the young people that have to be supported by a small working population
which reduces the level of savings and investment and hence reduced capital
accumulation.
 Leads to high rates of rural urban migration and its negative effects. It leads to land
shortage for carrying out productive activities forcing people to move to urban areas to
seek for jobs leading to problems like congestion, high crime rate such robbery,
prostitution etc.

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 Leads to quick depletion of resources due to over exploitation of existing resources.
It leads to excessive demand for goods and services which results into over exploitation
of non renewable resources to support the increasing population.resulting from excessive
demand for them by the big population.
 Leads to low labour productivity. It reduces access and use of land especially for
agricultural production which leads to low productivity hence low level of economic
growth.
 Exerts pressure on land/ leads to land conflicts. This is because of the ever-rising
population yet the size of land available for them to use remains constant.
 Leads to limited domestic demand/Low effective demand. This is due to high levels of
poverty resulting from low per capita income.
 Leads to balance of payment problems. This is because of the high import requirement
to supplement domestic supply in order to sustain the big population. Overpopulation
increases foreign exchange expenditure on import requirements to supplement domestic
production/supply
 Leads to high government expenditure in provision of social services such schools,
hospitals etc. It requires the government to spend more on health facilities, education,
etc so as to improve peoples’ standards of living which strains government budget
leading to budgetary deficit.
 Overstrains planning machinery. This is due to the rapid population increase which
calls for effective planning to ensure effective provision of the basic necessities of life.
 Leads to high social costs in form pollution, congestion etc. this is due the poor
disposal of waste materials by such big population size.

 Leads to low income per capita. It creates income gap between the few literate and
skilled people who get good paying jobs and the majority illiterates and less skilled who
earn no or less earnings hence worsening income inequality. The majority of the
population becomes poorer due to a reduction in income per person as the population size
increases.

 It results into brain drain. It creates surplus labour which forces people to move abroad
in search for greener pastures hence depriving a country of skilled manpower

The possible measures to overcome overpopulation and its negative effects:

 Encourage family planning to reduce the birth rate and consequently reduce the
population growth rate to avoid overpopulation.
 Under take education and training of labour to increase its average product hence
avoiding overpopulation.
 The authorities can put in place effective marriage laws that restrict early marriages in
order to reduce the size of population relative to the available resources.
 The government can put in place resettlement schemes to ease pressure on land in
currently overpopulated areas.

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 The economy should use tax incentives for smaller families and disincentives for large
families as a way of discouraging large families.
 The government can tighten the immigration laws aimed at reducing the artificial growth
rate to eliminate overpopulation in the economy.
 Promote industrialisation of the economy to create more employment opportunities for
the growing population.
 The economy should export the excess labour to relieve pressure on available domestic
resources to increase the average domestic product of the economy hence eliminating
overpopulation.

THE CONCEPT OF OPTIMUM POPULATION:

The term Optimum population refers to the population size that provides labour force
that is sufficient enough to combine with existing co operant factors leading to maximum
output per worker/highest per capita income/average product
OR: It is the ideal population size which provides labour force which is sufficient to
combine with existing co-operant factors leading to maximum output per worker/per
capita income is highest.
Therefore a certain number of people is required to optimally utilise the available resources.

The Features of an optimum population:

 Output per capita is at its highest level.
 There is full utilisation of resources.
 Consumption per capita is at its highest level in the economy.
 The existing labour force is adequately absorbed in production; there is no unemployment
or underemployment of labour.
 There is full utilisation of the available amenities /facilities.

The factors that influence the size of Optimum population:

The optimum size of population keeps changing overtime due to constant changes in the
factors that influence the size of the optimum population of any given economy.
The optimum size of population of an economy is determined by:
 The population size of the economy. A big population size relative to available
resources tends to lower the size of optimum population because it tends to lead to over
exploitation of resources and other negative effects related to overpopulation, whereas a
small population relative to available resources results in resource underutilisation.
 The level of technology used. A country with high level of technology has a relatively
high optimum population than a country with low level of technology because the high
technology makes it possible to support a large population due to a high level of resource
exploitation and productivity which may not be the case with a population with low level
of technology.
 The amount of resources available to produce goods and services. A large amount of
resources requires a large optimum population to exploit the resources effectively,

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 whereas a country with few natural resources can only support a small optimum
population.
 The size and quality of labour force available in the economy. A population with a big
size of skilled labour is capable of supporting a large optimum population because of the
high productivity associated with skilled labour whereas a population with low level of
skilled labour can only support a small optimum population due to low productivity
associated with unskilled labour.
 The level of development of the infrastructure of the economy. Good infrastructure
enables a population to attain a big optimum population size due to high production
efficiency enabled by a well-established infrastructure while poor infrastructure leads to
labour inefficiency which leads to a low level of optimum population.

 The amount of capital in the economy. An economy with a large amount of capital
stock is able to support a big size of optimum population. Because of the high
investment, production and income associated with large supply of capital, whereas a
country with low level of capital can only support a small size of optimum population
due to the low level of investment and production arising from inadequate capital.
 The level of political stability in the economy. A good political climate results in a high
optimum level of population because it encourages investment, resource utilisation,
production and income level rises. On the other hand, political instability lowers the
optimum level of population because it discourages investment, which lowers income
level.

The Limitations of the optimum theory of population:

 The optimum population size is ever changing because it depends on a variety of factors
like available resources, level of technology, structure of economy, model of ownership
of resources, and international situation.
 It is difficult to measure optimum level of population due to limited statistics on income
levels in developing countries.
 The theory neglects distribution of income in the economy. Increase in per capita income
does not lead to increase in prosperity if national income is concentrated in the hands of a
few rich people while the majorities are extremely poor.

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 An illustration of the concepts of over population, Under Population and Optimum
population

Average
Product/Output
(Increasing (Decreasing
returns) returns)
Under Over
population Population Average product curve

0 Po Population

Po is the optimum population

THE CONCEPT OF A DECLINING POPULATION: This is one where there is a

continuous fall in the total population due to the continuous decline in the birth rate or falling net
migration.
The causes of decline in population:
 Increase in death rate
 The decline in birth rate
 The decline of the rate of immigration
 The increase of the rate of emigration

The Positive effects of a declining population:

 It brings about a reduction in government expenditure on social services, which increases
funds available for investment in directly productive ventures.
 It brings about a decline in dependence ratio.
 The balance of payments position of a country is likely to improve as the population declines
because of a decline in demand for the goods and services, which reduces the level of
importation while increasing the availability of goods for export.
 The quality of labour improves due to greater access to co-operant factors and social
services.
 It helps a country to attain an optimum population in case there was overpopulation.
 It is likely to increase the level of savings and capital accumulation if the number of
dependents reduces because people would then have more money to invest in productive
activities and increase the level of capital accumulation.

15
 It enables the provision of adequate services to the available population because the size of
population is reducing making it possible for government to afford giving adequate services.
 It reduces the pressure on existing resources such as land due to a smaller number of people
accessing the limited resources.
 The problem of unemployment and underemployment reduces due to a fall in the number of
job seekers because of a falling number of people in the economy.

The Negative effects of a declining population:

 Shortage of labour arises in some sectors as the labour force in the economy shrinks due to
the decline in population size.
 The burden of the national debt and social services increases because the debt burden is
shared among a smaller population.
 It results into a fall in the demand for goods and services. This reduces the level of
investment and economic activity, which results into unemployment.
 The average cost of providing services increases because the population size is falling. This
is so because the government incurs the same total cost in infrastructural development as it
would have in case of a bigger population.
 The problem of dependence arises if the declining population is because of a decline in the
working population.
 A declining population results into a fall in output levels and economic growth due to the
shortage of labour force and market for goods and services.

THE CONCEPT OF AGEING POPULATION: This is a population where the

percentage of the aged is increasing while that of the young is declining.
It involves a shift in the distribution of a country's population age structure towards greater
ages. This is due to increased life expectancy arising from improvement in the quality of life
combined with a decline in the birth rate.

The implications of an ageing population:

 Reduces the size of labour force. The old people are vulnerable and therefore tend to be less
productive which reduces the size of labour force.
 Increases immobility of labour. The elderly are usually unwilling and/ or unable to change
occupations or places of work because of vulnerability hence leading to occupational and
geographical immobility of labour.
 Innovations and inventions decline. The old people tend to be conservative and therefore reluctant
to adapt to new and modern changes which retards development.
 It brings about structural unemployment. This is because the demand for the products
of those industries dealing in the production of goods for the young falls and others close
down such that the workers previously employed in these industries loses jobs.
 Leads to change in patterns of production towards commodities consumed by the old e.g. hats,
walking sticks, long dresses etc. It brings about the establishment of new industries to cater
for the demands of the elderly.
 Innovations and inventions decline. The old people tend to be conservative and therefore
reluctant to adapt to new and modern changes which retards development.

16
  High government expenditure. The government spends highly on provision of benefits like pension
and retirement packages which may lead to budgetary deficit.
 Leads to high dependence burden in the economy. This is due to the increasing percentage of the
old who must rely on a shrinking size of the labour force.

THEORIES OF POPULATION:

1. THE MALTHUSIAN POPULATION THEORY:

The Malthusian population theory was advanced by Reverend Thomas Malthus and it states that
‘whereas population grows at a geometric rate that is 2, 4, 8, 16, 32 etc, food production
tended to grow at an arithmetic rate, that is, I, 2, 3, 4, etc, Malthus stated that due to the above
trend, population growth after a time would outstrip food production (population trap), and
after such a time there was need to control population growth through preventive/ negative
checks like moral restraint, late marriages, celibacy etc. otherwise positive checks like pestilence,
wars, diseases etc would serve to reduce the population.

An illustration of the Malthusian population trap:

Population and
food growth E Population growth

C Food growth/Supply
B

A
D

0 t
Time/Period

Assumptions of Malthusian population theory:

 The theory assumes that technology is constant in production of food/food supply or
resource exploitation.
 The theory assumes that countries have closed economies implying that there is no
foreign trade.
 The theory assumes that there is no possibility of getting foreign aid or resources given to
a country from other countries in form of food.
 The theory assumes that economies of developing countries are predominantly
subsistence where people produce for own consumption and there is no surplus of food
meant for storage.
 The theory assumes a situation of labour immobility where labour has no possibility of
moving from one region or country to another to ease population pressure.
17
 The theory assumes the concept of diminishing returns on land where, once land loses its
fertility there is no possibility of regaining it to increase food supply.
 The theory assumes that the available population in a given country depends on food
alone

The relevance of the Malthusian population theory in developing countries:

To a small extent, the theory is relevant in developing countries in the following aspects;

 Land is fixed in supply and subject to diminishing returns .Therefore, the ability of land
to produce enough food for the growing population declines overtime as envisaged by
Malthus.
 The positive checks that include wars, pestilence/epidemic, and starvation happen in
developing countries due to pressure exerted by the large population size, causing
suffering and death as predicted by Malthus.
 Some people in developing countries practice preventive checks that include natural
population controls (abstinence or celibacy and late marriages) to reduce birth rate.
 Some areas in developing countries experience food shortage and starvation, which
sometimes lead to death as stated by Malthus.
 Land problems including land wrangles/land disputes exist in developing countries due to
shortage of land arising from the high population growth rate, which is an indicator of
population growth exceeding the means of subsistence as stated by the Malthusian
theory.

To a greater extent, the Malthusian population theory is not applicable in

developing countries due to the following;

 Malthus did not foresee the possibility of technological advancement in agricultural

production that has led to tremendous increase in food supply to cater for the expanding
population.
 Malthus ignored the possibility of using scientific methods of family planning like the
use of contraceptives introduced for effective reduction in birth rate and therefore
avoiding a population explosion.
 Malthus did not put into consideration the fact that it would be easy to obtain food
supplies through international trade and international agencies and delivered to areas
experiencing food shortage to avoid famine, starvation, and death.
 The theory ignores the possibility of migration of people from overpopulated areas to
new areas with sparse population and unexploited resources, which helps to avoid
disasters predicted by Malthus.
 Malthus did not realise that rising living standards can cause a fall in birth rate and
population in other words assumed that any increase in the means of subsistence would
increase people’s demand for children that would raise the birth rate, which is not the
case; as people’s income and standard of living increase, their demand for children
reduces instead.
 The theory is based on the subsistence economy yet Ldcs economies are not
predominantly subsistence any longer.
18
 The theory over emphasises food production as the determinant of population growth rate
but ignores other factors like culture and education that greatly influence the population
size.
 Malthus did not foresee great improvements in transport that ease transportation of food
from areas of plentiful supply to areas of scarcity to avert any positive checks.
 The theory is highly influenced by the law of diminishing returns which is not always
true, yet there are possibilities of increasing returns instead which can lead to increase in
food production.
 There is no mathematical relationship between food production and population growth in
contrast with what is proclaimed by the theory that food grows in an arithmetic projection
compared to population that grows in a geometric progression.
 Malthus did not foresee the possibility of labour mobility, yet in reality, labour can move
to other areas to earn better and improve their standard of living to avert any misery that
may have arisen from excess population in a given area.
 The negative checks suggested in the theory, which are, celibacy and abstinence are
largely unrealistic and therefore unsuitable in controlling birth rate in developing
countries.
 The theory did not fore see the possibility of getting foreign aid/resources from other
countries which can be used to prevent the occurrence of positive checks.
 Agricultural modernisation is not foreseen by the theory, yet this is taking place in most
developing countries.

Relationship between Malthus theory and the concept of optimum population:

Population and
food growth Population growth
Food growth/Supply

0 t Time/Period
Average
Product

Under Over
population Population Average product curve

0 Population
Po

19
 Both theories emphasise a given amount of resources that should sustain a given number
of people beyond which, according to Malthus, increase in population leads to adverse
effects, such as starvation and according to the Modern theory, leads to unemployment.
 Both theories emphasise an optimum situation. In case of the modern theory, an optimum
population is one that realises the highest average production, while the Population trap,
in case of the Malthusian theory, indicates the optimum population.
 According to Malthusian theory, the occurrences such as famine and wars are the
indicators of overpopulation, while the decline in the level of average output per worker
indicates overpopulation according to the modern theory of population.
 In both theories, there is an indication that there is need for caution to avoid declining
standard of living due to a high population.
 According to Malthus, a society attains a maximum population over time, which is not
the case with the optimum (modern) theory, which stipulates that the ideal population
size must be determined by the level of existing resources.
 According to the optimum theory, overpopulation may bring about development through
innovations and inventions and technological progress, whereas Malthus did not believe
that overpopulation has any positive attributes, but only causes starvation and death
unless it is checked.
 Malthusian population theory is pessimistic by stating that population cannot be
consciously controlled by modern, scientific methods, but the modern optimum theory
realises that population can be controlled using scientific means of family planning.
 Malthusian population theory predicts only doom arising from population growth
whereas the optimum population theory stresses the fact that increasing population leads
to increased labour force, which helps to increase the level of resource exploitation.
 Malthusian theory has a narrow scope compared to the optimum population because it
relates population growth to food production only, yet optimum population relates
population to total production in the economy.

2. THE DEMOGRAPHIC TRANSION THEORY:

According to the theory of demographic transition, population of any society transforms

itself right from a pre-industrial stage to an industrialised economic system.

The pre-industrial stage is one that has a stagnant population growth rate due to high
birth and death rate, and in the second stage, there is rapid population growth rate due to
high birth rate and declining death rate. In the last stage, the population growth rate is low
and stable due to low birth rate and low death rate.

The theory is based on Warren Thompson’s interpretation, an American Demographer,

who observed that the population structure and growth of a society are transformed
through stages overtime due to changes in birth rate and death rate in that society

20
 The pre-industrial societies are said to be in the first phase of the demographic transition
while developing countries are believed to be in the second phase while the industrialised
nations have the features of the third and fourth phases in the demographic transition.

(a) PHASE 1. This is a stage of stagnant, but low population growth rate due to the high
birth rate and an equally high death rate.
At this phase, the birth rate is high because;
 Individual Families have many children with the hope that some will survive. This is due
to the high death rate.
 Large families ensure adequate family labour in the predominantly subsistence economy
where families depend on family labour hence a high birth rate.
 Absence of modern and secure family planning methods leads to high birth rate because
it is difficult to check the high fertility rate in the society.
 The total cost of raising children was minimal, it barely exceeded their contribution to the
household, and the only cost was feeding because there were hardly any education or
entertainment expenses on children.
Children at this stage are the primary form of insurance in the old age of their parents.
A high death rate at this stage is due to:
 Absence of or inadequate medical facilities that increase mortality.
 Poor nutrition due to poverty and ignorance.
 Poor amenities (services) which result into low life expectance.
 General poverty.

(b). PHASE 2. This phase is the expanding phase characterised by a high population
growth rate due to a high birth rate combined with a falling death rate. There is a change
in the age structure of the population. The decline in death rates in this phase causes the
increasing survival of children and a growing population. The age structure of the
population becomes increasingly youthful (0-15).
The demographic trap is said to arise in the second stage because of the combination of
the high birth rate and declining death rate, which results in a period of rapid population
growth rate.
The bottom of the "age pyramid" is broad because the majority of the population is young
due to a high population growth rate. The age structure of such a population is illustrated
by using an example from the Third World today.

Whereas the birth rate remains high, the death rate falls due to;

 Reducing poverty or increasing incomes because the society is realising increasing

economic growth therefore, families are able to support large families.
 The death rate is declining due to improvement in the quality of life in terms of access to
more food and better sanitation
 Improvement in health services which reduces mortality and raises the life expectance.

(c) PHASE 3. This is a stage of declining growth rate where the declining death rate is
accompanied with declining birth rate. It represents the late transitionary phase.

21
  Birth rate is declining due to rapid industrialisation and urbanisation of the society
that result into a drastic fall in fertility rate.
 Increasing female literacy and employment lower the uncritical (indiscriminate)
acceptance of childbearing and motherhood as measures to improve the status of
women. While working women have less time to raise children, hence reducing the
demand for children among them.
 The improvements in contraceptive technology help to cause a decline in the level of
fertility.

(d) PHASE 4. This is a stage of low and sometimes zero or negative growth rate.
This is due to a very low birth rate due to very low demand for children as society
becomes highly modernised, most women go to work which drastically reduce
fertility rate.

AN ILLUSTRATION OF THE DEMOGRAPHIC TRANSIONARY THEORY:

Annual birth
rate and
death rate
per 1000

Birth Rate
(BR)
Death Rate
Stage 1 Stage 2 Stage 3 (DR)

1800 1840 - 1850 1890 - 1910 1970

Time/Period

THE POPULATION PROBLEMS OF DEVELOPING COUNTRIES:

 The Land shortage leads to land wrangles. This arises due to the ever-increasing number
of people sharing a limited supply of land, which results in a steep competition for, and
fighting over land.
 There is uneven regional development. This arises due to uneven distribution of
population in the economy because the under populated regions remain underdeveloped
due to under exploitation of the resources in those regions due to the low demand for
goods and services there. On the other hand, the high population in other regions
encourages resource utilisation and development of those regions.
 Productivity of labour is low in the developing economies. This is due to the dominance
of unskilled and semi-skilled labour in the labour market.
 The dependence burden is high. This is because the biggest percentage of population of
developing countries is the young who depend on a small working population. This

22
 reduces the level of savings since most of the income generated is spend on catering for
the large number of the young.
 There is high level of unemployment and underemployment in developing economies.
This is due to the high population growth rate and general lack of required skills, and
limited job opportunities that leaves many without jobs or working in jobs below their
qualifications.
 The domination of population by people below the working age discourages investment
because they have low effective demand for goods and services.
 There is external resource dependence. This arises due to the great reliance of developing
economies on foreign skilled labour because of the shortage of skilled local labour in the
economy.
 The high population causes balance of payments problems. This arises due to the high
import requirements to supplement domestic supply of goods and services to cater for the
high population.
 The expanding population strains the available social infrastructure, which results in high
rate of depreciation of the infrastructure leading to underdevelopment.
 Effective planning for the population becomes difficult due to the high population growth
rate, because it is difficult to project the population requirements due to the rapid increase
in the size of population.
 The population of developing countries is ever increasing, which strains the national
budget since the governments of these countries have to spend a lot of money to provide
services such as primary health care and education to young people who make the biggest
percentage of population in developing economies.
 There are high social costs associated with the population in developing countries such as
congestion and pollution. These arise from the fact that there are too many people relative
to the available facilities for the people to use.
 There is brain drain that deprives the developing countries of skilled work force. Brain
drain arises due to high levels of unemployment and underemployment in developing
economies that forces skilled labour to look for employment in other countries.
 There are high rates of rural urban migration and its negative implications. People tend to
move from rural areas to urban areas seeking for better standards of living, which results
in congestion and high levels of open urban unemployment in the urban areas.
 There is a high-income inequality between the rich and the poor since the majority of the
population is poor due to a number of factors, while a small percentage of the population
is rich due to unfair distribution of income and wealth in their favour.
 There is over exploitation and quick depletion of the available resources This is due to
the population explosion and consequent over exploitation of the limited resources.

23
SUB-TOPIC 2: LABOUR:

Labour refers to human effort both mental and physical used in production of goods and services.

Labour force: This is the proportion of the population that is made up of the working age
group, excluding full time students and house wives.

OR: It is the total number of people of the working age group that is available for
employment at a given time.

Therefore labour force is made up of all those people who are working and those who are
unemployed but of working age excluding full time students and housewives.

The composition of the country’s labour force:

 Size of the population
 Number of fulltime students/length of training period
 The health status of the population
 Government policy in terms of employment age/ age structure
 Social customs/number of fulltime housewives.
 Rate of migration

 Characteristics of labour force in developing countries:

 Largest proportion of the labour force is composed of relatively young population below
the age of 40 years.
 Labour force is characterised by poor health and living conditions in form of poor
housing, poor feeding/nutrition and poor health care.
 Large proportion of the labour force is illiterate, unskilled and semi-skilled.
 Due to high population growth rates, there is continuous increase in the supply of labour
force.
 Largest percentage of the labour force is unemployed and underemployed. This is
because the supply of labour force exceeds its demand.
 Labour force is organized in weak trade unions which cannot negotiate favourably for
fair working conditions and remuneration.
 Educated or skilled labour force is trained in less relevant education which prepares them
for white collar jobs.
 Biggest proportion of the labour force is occupied in the agricultural sector directly and
indirectly, and the smallest proportion is in the service and industrial sectors respectively.
 Child labour with age of 15 years also forms a proportion of the labour force.
 The small fraction of highly skilled labour made up of professionals is often unavailable
to the country because such labour is mobile and prefers to look for more lucrative
employment abroad.

24
FACTORS THAT AFFECT/INFLUENCE/DETERMINE THE COUNTRY’S LABOUR FORCE:

 Size of the population. A big population size results in a big size of labour force because
of a bigger number of people that fall within the working age as compared to a small
population size.
 Number of fulltime students/length of training period of labour. A long period of
training results in a small labour force because people take long in the education and
training system before they are able to join the labour force. Whereas a short training
period leads to a big size of the labour force because people train for a short time and are
able to join the labour force.

 Health status of the population. Good health of the workers of the people leads to high
labour force because there are many people to take on different jobs without any
interruptions. On the other hand poor health conditions leads to low labour force this is
because the people do not concentrate at their tasks due to ill-health.

 Government policy in terms of employment/age structure. A low minimum working

age leads to a big size of labour force since many people join the labour force at an early
age, whereas a high minimum working age leads to a small size of labour force because
many people stay long before they can join the labour force, on the other hand a high
retirement age leads to a large labour force because people stay longer as part of the
labour force before they retire, whereas a low retirement age leads to a small size of
labour force because people leave the labour force early.

 Social customs/number of fulltime housewives. Social customs that do not prohibit

some category of members of people such as women to work result in large size of labour
force, whereas customs that restrict some category of the members of society to join the
labour force, like the case where women are prohibited from seeking employment lead to
a small size of the labour force.

DEMAND FOR LABOUR:

This refers to the number of workers, employers are willing to offer jobs and are able to
retain in employment at the ruling wage rate in a given period of time.

The demand for labour is derived demand because it is required not for its own sake but
for what it is used to produce.

FACTORS THAT INFLUENCE/ AFFECT/DETERMINE DEMAND FOR LABOUR:

25
 Level of wages: The demand for labour is high at low wages, this is because it is cheaper
for the employer to hire and retain more workers. On the other hand demand for labour is
low at higher wages because it is expensive for the employer to hire and retain labourers.
 The level of labour productivity; Demand for labour is high when its productivity is
high because such labour produces more output. On the other hand demand for labour is
low when its productivity is low this is so because it produces less output.
 The degree of substitutability of labour. The demand for labour is high when it is
difficult to substitute it with other factors of production and the demand is low when it is
easy to substitute labour with other factors of production.
 The demand for the products produced by labour; A high demand for the products
produced by labour leads to high demand for it, this is so because the entrepreneur can
easily raise the money for paying the workers by charging high prices for the products.
On the other hand low demand for the products produced by labour leads to low demand
for it, this is so because it is hard for the entrepreneur to raise the money for paying the
workers since it is hard to charge high prices for the products they produce.
 The level of education and training/skills; Demand is high for skilled labour because it
is more active at work since they know how to do the work. On the other hand, the
demand for unskilled labour is low since they are not conversant with what to do.
 The proportion of total cost of labour to the overall cost of the firm. A high total cost
of labour compared to the total cost of the firm leads to low demand for labour since it
leads to low profit margin of the firm. On the other hand low total cost of labour
compared to the overall cost of the firm leads to high demand for labour because of the
high profit margin enjoyed by the firm.

 Availability of co-operant factors of production which complement labour. Presence

of other factors that complement labour such as land, capital etc leads to high demand for
labour since they necessitate more units of labour to produce more output, while limited
co-operant factors of production leads to low demand for labour since they are limited in
supply to complement labour in the production process.

LABOUR SUPPLY:

This refers to the number of hours labourers are willing to offer for employment at the
ruling wage rate in a given period of time.

OR: The number of people who are willing and are ready to work at the on-going wage
rate in a given period of time.

FACTORS THAT AFFECT/INFLUENCE/DETERMINE LABOUR SUPPLY:

 The wage rate; people are willing to supply more labour when the wage rate is high
because the workers are contented with what they are earning. On the other hand labour
supply is low when the wage rate is low because the workers are not satisfied with the
payments.
 The working conditions: more labour is supplied when the conditions of work are
favourable because such conditions like good accommodation facilities, medical facilities

26
 motivate workers to offer more hours of work, while poor conditions of work leads to
low supply of labour because the workers are de-motivated by the harsh working
conditions hence supplying less hours of work.
 The length of training period; Labour supply is high when the training period for labour
is short because people join the labour force in a short period of time, while a long period
of training for labour leads to low labour supply since it takes a long period of time to
complete their studies so as to join the labour force.
 The level of education and training/Skills. The supply of labour is high when labour is
skilled since they have necessary qualifications required in the labour market, while lack
of appropriate skills leads to low supply of labour because most people do not have the
necessary requirements in the labour market.
 The health condition of workers: Good health of the workers leads to high labour
supply because the workers perform their tasks without any interruptions. On the other
hand poor health conditions leads to low labour supply this is because the workers do not
concentrate at their tasks due to ill-health.
 Retirement age: where the retirement age is low the labour supply is low because people
are stopped from work at an early age and where the retirement age high labour supply is
high because workers are stopped from work at a higher advanced age.
 Laws governing the employment of women and children: In countries where
employment of women and children is allowed, labour supply is high because different
categories of people are allowed to work while in those countries where the law prohibits
the employment of children and women labour supply is low since few categories of
people are allowed to work.
 Attitude towards work: Where people have got a positive attitude towards work more
labour is supplied because people are interested in what they are doing. However
negative attitude towards work leads low labour supply because people are not interested
in doing the work.
 The level of labour mobility both occupationally and geographically: Where labour
is free to change from one job to another or from one region to another the supply of
labour is high, this is because there is a high number of people ready to work .On the
other hand labour supply is low when there are high levels of immobility of labour
because there is less number of people ready to work in some occupations or regions.
 The size of the population. A bigger population size leads to high labour supply since
there are more people to engage in productive activities. On the other hand a smaller
population size leads to low supply of labour since there are few people to participate in
the production process.
 The nature of the job/ the degree of risks involved in the job: The risky jobs become
more dangerous when one works for many hours, therefore workers offer few hours of
work in such jobs leading to low labour supply. On the other hand jobs that are risky
attract many workers who are even ready to work for many hours and this leads to high
labour supply.
 The political climate: Peace and stability contributes to the workers’ comfort and
willingness to work for many hours, this leads to high labour supply. On the other hand
political instability scares away some workers and even those at work offer few hours of
work leading to low labour supply.

27
 The influence of trade unions. Some trade unions put very strong restrictions on the
number of people joining their fields, therefore many people who are willing to work are
left out and this leads to low labour supply. On the other weak trade unions are not able
to limit the number of people joining their fields and this leads to high labour supply.
 The sex composition of the population: Having more females to males in a country lead
to low labour supply, this is because of the cultural restrictions in some societies and
during maternity leave. On other hand having more men compared to women in country
leads to high labour supply, this is because men have less social restrictions and therefore
work for many hours
 The rate of migration of labour (immigrations and emigrations). High rate of
immigration leads to low labour supply, this is so because many potential workers leave
the country. On the other hand high rate of emigration leads to high labour supply. This is
so because many potential workers enter the country.
 Discrimination in the labour market: Absence of discrimination in the labour market
leads to high labour supply, this is so because majority of the people have the opportunity
to take on the available/existing jobs. On the other hand discrimination in the labour
market leads to low labour supply; this is so because many people are denied the
opportunity to take on the existing/available jobs.

WAGES: This is a reward/payment to labour for its contribution/participation in the

production process.
The wage rate: This is the wage paid to employees over a given period, such as an
hour, or a week or per unit of work done/amount of work done.

OTHE TERMS USED IN REFERENCE TO LABOUR PAYMENT:

SALARY: This is a form of periodic payment to qualified personnel as specified in the

employment contract.
ALLOWANCE: This is a fund paid or allocated to employees periodically for a stated
purpose such as transport or housing allowance separate from the wage paid, such as a
per diem, transport or housing.

COMMISSION: This is a payment made to employees based on the value of sales they
achieve. It can form all or part of a pay package usually calculated as a fixed percentage
of the value of the good or service they sell.

The commission rate is influenced by the selling price and the amount of effort required
in making the sales.
Merits of Commission payments:
 Commission payments enable people who perform very well to earn a lot of money.
 The labour cost is related to the value of business achieved rather than just the amount
produced (as in case of piece rate system) which helps to increase sales and profits to the
business.

TYPES OF WAGES:

28
 Nominal wage. This is the wage expressed in monetary terms.

Real wage. This is the purchasing power of a worker’s nominal wage. It is in terms of the
basket of goods and services the nominal wage can buy/purchase.

The factors that influence the amount of real wages:

 The price levels for goods and services. High general price levels leads to low real income,
this is because the purchasing power of a unit of nominal falls as price level rises and the
real wage increases with a fall in the price level , this due to increased purchasing power of
nominal income
 The amount of goods and services available on the market. A large amount of goods and
services available to consumers result in a high real wage because a lot can be accessed using
a unit of money, and scarcity of goods and services in the market lowers the real wage
because fewer commodities can be accessed using a unit of money.
 The level of taxation in the economy. High level of taxation lowers the disposable income
hence reducing the real income whereas low level of taxation raises real income because of a
high disposable income.
 The level of Money supply in the economy. The higher the level of money supply, the
lower the real wage because the domestic currency becomes weaker when its supply
increases compared to its demand.
 The size of the subsistence sector /Level of monetisation in the economy. The bigger the
sizes of subsistence sector, the bigger the real wage since individuals spend less for goods
and services.

SUBSISTENCE WAGE. This is payment to labour which is just sufficient to provide bare
necessities of life.

LIVING WAGE. This is a wage that enables a worker to provide for himself/herself and
his/her family not only the necessities of life but also some comfort for example giving
children good education, healthcare, leisure.

OTHER CONCEPTS USED IN CONNECTION TO WAGES:

Wage freeze: This is the legally backed holding of wages at their existing level for a specific
period to check inflation.

Wage restraint: This is the voluntary restriction of wage increases where the government
encourages trade unions to moderate their demand for wage increases and employers to refrain
from paying higher wages to check inflation.

OR: This is where the government appeals to the employers in the private sector to stop
increasing wages for sometime during inflation.

Wage drift: This refers to the increase in earnings over and above the prevailing wage obtained
as a result of collective bargaining.

29
The economy of high wages: This is a situation when wages are increased in order to promote
labour efficiency because when wages are low, workers become less efficient.

The advocates of the concept of the economy of high wages have the following arguments;
 High wages encourage target workers to retain their jobs, which helps to minimise voluntary
unemployment.
 Absenteeism among workers reduces.
 Increase in wage level increases labour productivity.
 High wages lead to an increase in welfare of workers.
 High wages increase labour supply as labour is attracted to offer more hours of work.
 High wages increase the level of aggregate demand, which raises the level of economic
activities and income.
 High wages encourage both occupational and geographical mobility of labour, which raises
efficiency and productivity.
 Labour unrest is minimised since workers are generally happy.

The negative effects of high wages:

 It leads to an inflationary spiral as the high wages force employers to keep raising market
prices for their products to realise profit, the increase in prices brings about increase in cost
of living, which in turn necessitates further rise in wages.
 It encourages rural urban migration and its associated evils because the high wages in urban
areas attracts the workers in rural areas to move to urban areas for the higher pay.
 High unemployment arises due to reduction in demand for labour by the employers due to
the high cost of labour.
 High wages widen the income gap where job opportunities are not well distributed.
 The workers tend to offer few hours of work in preference to leisure because they are able to
realise their target income sooner.

The factors that influence/Affect/ determine the level of wages in developing countries:

 The Demand for and supply of labour in the free labour market. When the demand for
labour exceeds its supply, the level of wages increase because the employers must give
labourers an attractive wage in order to retain them. On the other hand when supply of labour
exceeds its demand, the level of wages reduces because employers are not scared of
acquiring labourers in case the current employees leave due to low pay.
 The bargaining strength of an individual worker. Workers with high bargaining strength
are usually paid high wages because they are able to effectively negotiate to be paid high
wages. On the other hand, workers with low bargaining power are paid low wages because
they cannot effectively negotiate for high wages.
 The bargaining strength of trade unions. Trade unions with strong bargaining skills are
able to bargain for better wages for their members hence leading to higher wages; on the
other hand trade unions which are relatively weak with low bargaining skills fail to negotiate
for better wages for their members leading to low wages.

30
 The amount of work done by the worker in case the employer uses the piece rate system
of wage determination. The employer pays a high wage to labour that does a lot of work
and a low wage to labour that does little work.
 The number of hours worked in case the employer uses a time rate system to set the
wage. The worker who offers high number of hours towards work earns high wages while
those who work for few hours earn low wages.
 The level of cost of living. Employers usually base wage determination on the level of the
cost of living in the economy at the time to enable the workers sustain themselves; a high
cost of living compels employers to pay higher wage than when the cost of living is low.
 The level of education and skills/ Level of training. Workers with high qualifications or
skills earn high wages, this is so because highly skilled labourers are more efficient and
productive at work, while workers with low level of education and training get low wages,
this so because they are less efficient and productive at work.
 The nature of the job(s).Jobs that are highly risky attract high wages so as to attract people
to take on such jobs as a compensation for the many risks involved. On other hand less risky
jobs attract low wages because people do not fear to take on such jobs and therefore it
attracts high labour supply leading to low wages.
 The employer’s ability and willingness to pay. Employers that are willing and able to pay
usually pay high wages to labour because such employers have the financial ability/strength
to do so, while employers whose willingness and ability to pay is low usually pay low wages
to labour, this is so because such employers do not have the financial ability/ strength to
afford paying high wages to the workers.
 The level of talents and natural gifts of the workers. Workers with unique talents usually
get high wages due to the rare talent while those who are not gifted earn low wages.
 The levels of experience/ expertise, or responsibility of the worker. Employers usually
associate experience and responsibility with efficiency and productivity. Employers pay
experienced workers and those with many responsibilities high wages that correspond to their
expertise and experience, and pay low wages to those with low experience and few
responsibilities.

Reasons for low wages in the primary production sector

 Products in primary sector command low prices.
 There are too many uncertainties in the sector.
 Weak trade unions that can’t bargain for higher wages.
 There is excess labour supply in the sector.
 Low cost of living in the primary production sector.
 Weak government policies on wages and incomes in the sector.
 High level of subsistence production in primary sector.
 Most of the labourers are unskilled hence command low wages.
 There is low productivity in this sector.
 Most of the products in the sector have got elastic demand.

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FORMS OF WAGE DETERMINATION/ METHODS OF WAGE DETERMINATION:

1. The market forces of demand and supply of labour. In a free labour market, the wage rate
is automatically set where the demand for labour is equal to its supply.

2. Through government policy of wage legislation/ through wage legislation: This is the
policy of setting/fixing a wage by the government above the equilibrium wage below
which it is illegal for employers to pay their workers.

Note: A minimum wage is one set by the government above the equilibrium/ruling
market wage and it is illegal to pay a worker below it.

An illustration of a minimum wage:

Wage
DL SL
Unemployed
W1 Minimum Wage
OW1 = Minimum wage
We Owe = Equilibrium wage where DL
is equal to SL
DL = Demand for labour
SL = Supply of labour
SL DL
0 L1 Le L2 Labour

The reasons for setting a minimum wage:

 To protect employees from exploitation by employers. This is because it becomes illegal to pay the
worker below the wage fixed / set by the government i.e. the employers are bound by law not
to pay workers below the legislated minimum wage.
 To reduce labour unrest/ strikes/ To promote industrial peace. This is because the set wage
enables labour to sustain the needs of the family which gives job satisfaction hence reducing
labour unrest in form of strikes which tend to be destructive.
 To reduce income inequalities. This is achieved by putting in place a reasonable
minimum wage that reduces the wage gap between the highest and lowest wage earners
hence bridging the income gap.

32
 To increase the efficiency of labour. This is because high minimum wage acts as an
incentive for labour to perform better at their jobs.
 To increase labour supply in the economy. This is because the high minimum wage
encourages labour to offer more hours of work.
 To reduce the level of brain drain. This is because a high minimum wage prevents
skilled labour from looking for employment in other countries because labour is satisfied
with the payments they get at home.
 To induce government popularity/ win political support. A high minimum wage indicates that the
government in power identifies itself with workers’ welfare which helps to win political support.
 To help workers meet rising cost of living. This by setting a high minimum wage it
increases the purchasing power of workers that enables them to maintain a reasonable
standard of living.
 To fight malpractices like corruption and embezzlement. This is achieved by putting
in place a high minimum wage to make workers contented with what they earn and
eliminate the temptation to misappropriate public funds and asking for bribes.
.
Positive effects/ Merits of a minimum wage:

 It reduces industrial unrest/strikes. This is because it enables workers to meet their needs /
requirements thereby promoting industrial peace.
 Builds a stable work force/Reduces labour turn over. This is because the employees are
contented with the payment at the current place of work and therefore see no need of
leaving.
 It protects workers from exploitation by the employers. This is because it becomes illegal for
employers to pay workers below the set wage rate fixed by government.
 It increases labour efficiency. This is because it increases morale of workers since they are
contented with the pay.
 It reduces brain drain. This is because workers find it unnecessary to leave the country since
they are satisfied with the pay.
 It increases the purchasing power of the workers. This is because minimum wage enables
the workers to earn income since it is set above the equilibrium wage.
 Makes the government popular because the natives feel that the government cares for
them.
 Reduces workers malpractices e.g. absenteeism. This is because the workers get
contented with the pay.
 It ensures equitable/even distribution of income. This is because the minimum wage
enables the low income earners to increase their earnings and thus moving closer to those
in high income bracket.

The demerits/ Negative effects of a minimum wage:

 It leads to unemployment .This is because the high wages forces the employers to
reduce the workers or to resort to use of capital intensive technology since labour
becomes very expensive.
 It increases the cost of production due to high labour costs. This is due to high cost of
labour/ high wage bill which leads to cost push inflation.

33
  It worsens the income inequality. This arises when the minimum wage is not evenly
implemented where certain category of workers earn much more than others, which
widens the income gap between those that are paid a high minimum wage and those that
are not.
 It discourages investment/ It discourages entrepreneurship in the economy. This due
to high cost of production/ labour which reduces profits thereby scaring away potential investors.
 It brings about rural urban migration and its associated evils. This is because
workers move to urban areas to take advantage of the high minimum wage where most
job opportunities exist, unfortunately majority of such people fail to get the jobs and this
leads to open urban unemployment and other social evils such increases crime rate.
 It encourages inflation in the economy. Businesses try to cover the high expenses on
labour by raising the prices of the goods being sold.
 . This is due to low profit levels arising from high cost of labour.

3. Collective bargaining. In this case, wages are determined through round table negotiations
between the employer and the trade union representatives and the employer’s representatives.
4. Bargaining by individual workers. Individual workers are given opportunity by some
employers to bargain for their pay.
5. Employer setting the wage. In this case, the worker is paid a wage which is already set by the
employer and such a wage is not negotiable.
6. The use of the piece rate system of wage payment. Under this system, wages determined
or paid according to the amount of work done/accomplished by the worker.

NB (i) Piece rate. This is a method of wage payment where labour or workers are paid according
to the amount of work done or accomplished.

(ii) The piece rate system of wage payment is used where output can be quantified.

The advantages of piece rate system:

 Tasks are completed faster. Workers do their work within a short time because they
work at high speed to produce as much as possible in order to earn more.
 Encourages innovativeness among workers. Workers become more innovative as they
strive to increase their productivity to earn more.
 Faster workers get more remuneration. This is because workers who work hard earn
more by producing more due to their hard work.
 Calculation of wage rate is made easy. This is because output is measurable on which
the wage is based.
 It limits disagreements/ conflicts over payments since it is based on output thus
minimising industrial unrest.
 It eliminates the need for constant supervision. This is because workers are self-
motivated.

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  Workers do the work at their own pace. This is because they are not pushed to do more
as each is paid according to his effort; each worker performs according to his or her
ability to do work.
 Helps employers in identification of suitable employees. This is done by judging from
the amount of work done by individual workers.
 Protects employers from falsified payments since wages are directly related to output.
 Lazy and dull workers are stimulated to work harder in order to earn more.
 Employers easily forecast output. This is done by basing on the output produced by
each worker.
 Promotes team sprit among the workers. Since the worker is done in groups, where
workers co-operate with each other.
 Higher output is realised. This is because the workers put in more effort in order to earn
more income.

The disadvantages of piece rate system:

 Reduces quality of work because of hurried work for higher pay.
 Workers tend to overwork themselves, which in the end negatively affect their well-
being/ health.
 Slow but careful and efficient workers are discouraged. This is due to low wage
payment arising from the low quantity produced by them.
 High risks of accidents occur at work. This arises as workers rush to do as much work as
possible in order to earn more.
 The system brings about fluctuations/ instability in incomes of workers over time. This is
due to changes in their productivity arising from variations in working conditions over
time.
 It undermines trade union solidarity as worker’s interest is on individual payment since
each is paid according to his or her ability.
 The system is likely to cause labour unrest because the lazy workers tend to resent the
hard working employees.
 The system causes income inequality among workers as the hardworking labour is paid
much more than the lazy ones.
 It causes overproduction due to high output rates which results in wastage of resources.
 It is inappropriate where it is difficult or impossible to quantify work done, because the
wage to be paid is calculated based on the amount of work done. It increases the cost of
supervision in order to ensure high quality of output.

7. Time rate system of wage payment. This is where the wage is set depending on the amount
of time (duration) the worker spends while at work e.g. the wage rate basing on hours, days,
weeks etc.
NB: Time rate: This is a method of wage payment where workers are paid according to the time
they worked e.g. per hour, per week but not per month.

The cases when it is appropriate to use the time rate system of wage payment include:

 When high quality of work is essential this needs careful workers.

35
  When it is not possible to speed up work.
 When work is neither measurable nor standardised.
 When it is not possible to quantify individual output.
 When long-term exposure of workers at work may affect their health.
 When there are inevitable times of temporary idleness.

The advantages of time rate system of wage payment:

 It encourages hard work where people can work overtime to earn more.
 It benefits the inefficient and lazy workers where there is no supervision because the
system guarantees payment even when they do little work.
 The employee is assured of a regular payment.
 It reduces conflict among workers hence ensuring industrial peace.
 It ensures high quality output under supervision.
 It is appropriate where output per worker is hard to measure.
 It minimises the risk of damage and accidents since workers take their time to do work.
 Employers are able to calculate correctly the wage bill in time because wage is paid per
defined period of time, which helps in financial planning purposes.
 The system does not strain workers since they work at their own pace.
 Workers are able to plan their expenditure because they are aware of how much they earn
per period.

The Disadvantages of time rate system of wage payment:

 It encourages laziness and absenteeism among workers because the system guarantees
payment to the workers per period irrespective of the volume of work done over that
period.
 It discourages fast and enthusiastic workers. There is no incentive for greater efficiency
on the part of workers since all are paid the same per period.
 It results into lower output since workers are paid according to time spent at work and not
according to amount of work done.
 It increases the cost of supervision. Strict supervision is necessary to prevent
sluggishness.
 It is difficult to estimate output in advance because productivity is not synonymous with
time worked.
 The workers tend to slow down work in normal working hours in order to earn more due
to overtime work.

Other concepts used in connection to wage payments:

Sliding scale: This is a method of wage payment where workers are paid according to
changes in the cost of living to enable them cope with changes in the cost of living to
maintain their standard of living.

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 The merits of a sliding scale:
 The rising cost of living due to inflation does not affect the workers since wages are
always adjusted in line with changes in cost of living.
 The workers real income remains stable.

The demerits of a sliding scale:

 It is hard to calculate the cost of living index now and then, yet this is necessary for
employers to be able to determine the wage.
 The worker’s income remains unstable due to frequent adjustment of the wage as the cost
of living changes.
 It can lead to industrial unrest because workers always resist any wage reduction in case
there is a reduction in the cost of living.
Note: It is very hard to reduce the wages when the cost of living drops/ reduces.

Profit sharing: This is a system where the employer puts a side a percentage of the
annual net profit to enable the employees to share it amongst themselves.

Bonus payment: This is a method of payment where the employer, when impressed
with the work done by his/her employees, gives them a payment over and above the
regular payment.

Both profit sharing and bonus payment have the following advantages;

 Hard work among workers is encouraged. This is so because the workers identify
themselves as partners in the business whose success results in greater profits for
themselves.
 It promotes Labour efficiency because the workers have an incentive to increase output
so that more profit is realised.
 Responsibility among workers increases which lowers losses of the firm.
 It creates a good employer-employee relationship hence promoting efficiency

Over time payment: This is a payment to a worker when he/she works beyond the
stipulated hours of work.
Wage indices scheme: This is one where workers are paid according to the cost of living so
as to enable workers maintain a minimum level of standard.

THE THEORIES OF WAGE DETERMINATION:

There are a number of wage theories developed over time to explain wage determination and
these include the following:
 Subsistence theory of wages/Iron law of wages.
 Wage fund theory
 Bargaining theory of wages
 Residual claimant theory of wages
 Marginal productivity theory of wages

37
 The Modern theory of wages

THE SUBSISTENCE THEORY OF WAGES/ THE IRON LAW OF WAGES:

This theory was developed by French classical economists who had been influenced by
the Malthusian population theory. It states ‘that workers should be paid wages that
enable them meet their bare subsistence needs so that they work harder after experiencing
hardships like hunger.’
Any wage above the subsistence level raises the birth rate leading to an increase in
population, which leads to oversupply of labour, which pulls down the wages back to the
subsistence level.
If on the other hand, the wage were lower than the subsistence level, the standard of
living would be too low leading to poor conditions of living and death hence a reduction
in population that causes a shortage in labour supply such that the wage rises back to the
subsistence level.

Criticisms/ Limitations/ inapplicability of the subsistence/Iron Law of wages:

 The law/ theory approaches the problem of wage determination entirely from the supply
side, it ignores demand for labour, labour and yet both the demand for and supply of
labour influence the level of wages in a free labour market thus difficulty in using it.
 The theory relates wage rates to birth rates/population growth rate which is not the case
in the labour market in developing countries.
 According to theory all workers should receive the same wage rate which is not the case
in developing countries where wages differ.
 The theory does not consider the fact that the bare minimum needs varies from time to
time depending on the price levels, conditions etc.
 The theory is only applicable to the subsistence sector/in the subsistence of living but not
to the commercialised sectors of the economies of developing countries which use other
considerations in wage determination.
 Trade union influence in wage determination is not taken into consideration by the
theory, yet these greatly influence wage determination
 Contrary to the assertions of the law/theory employees work harder when paid higher
wages or do not work hard when paid very low wages.

Relevancy/ applicability of the Iron Law/ Subsistence Theory of wages

Note: The theory is applicable to a smaller extent in developing countries in the
following ways:
 Casual workers/unskilled workers are paid basing on the level of their subsistence needs.
 In the subsistence sector of developing countries rewards to workers is based on basic
needs hence applicability of the theory.
 Employers in bid to retain cheap labour tend to pay workers wages which are just enough
to cater for their subsistence needs.
 Entrepreneurs due to profit maximisation goal pay workers wages which are just enough
to meet their subsistence needs only.

38
 Employees due to high level of unemployment are willing to accept low wages rates as
long as it covers their subsistence needs.

THE WAGE FUND THEORY:

This theory was developed by J S Mill. According to this theory; wages are paid from a
wage fund created by the employer even before employment.

The size of the wage fund is usually determined by the rate of capital accumulation.
According to the theory, the wage rate depends on the size of the wage fund and number
of workers
So the Wage rate paid = Wage fund
Number of workers

According to this theory, wage rate can only rise if the wage fund is increased or when
the number of workers reduces.

The criticisms of the wage fund theory:

 In modern economies, there is no rigidly fixed wage fund. When employers find it
necessary to increase the number of workers employed, they always look for funds to pay
additional labour.
 The theory simply states that the wage rate is calculated by dividing the wage fund by the
number of workers but does not show how the wage fund is arrived at and if it is
necessary for the entire fund to be exhausted.
 The theory does not accommodate situations where an employer may want to raise labour
efficiency and productivity by paying his workers highly.
 The theory goes about the order of operation wrongly because the employers usually
consider the wage rate and then determine the number of workers to employ, then
accumulate the wage bill and then look for the money to pay workers.
 It does not consider the possibility of employers raising wages in order to attract workers
in a competitive labour market.
 The theory assumes that labour is homogenous and therefore earns the same wage, but in
the real world, labour is not homogenous and therefore the existence of differences in
wage rates.

THE RESIDUAL CLAIMANT THEORY: According to this theory, wages are

paid from the residues left after the other agents of production, that is, capital, land and
entrepreneur have been paid, making labour the residual claimant. The bigger the residue,
the higher the wage paid, and the smaller it is the lower the wage

Weaknesses of the theory:

 In modern economies, the entrepreneur is the residual claimant because he gets his profits
after catering for all the cost of production, including labour costs.
 The theory ignores trade union activities where trade union activities do not allow
workers to be residual claimants.

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THE MARGINAL PRODUCTIVITY THEORY OF WAGES:

The theory states that the employer should pay labour a wage that is equal to the value of
the labour’s marginal product (MRPL) in order for the employer to maximise profits.
That is, Wage = marginal revenue product of labour (MRPL), where MRP = marginal
physical product of labour (MPP)

Market price of a unit of output of labour (MPP is the additional output arising from
employing an extra unit of labour while MRP of labour is the additional revenue arising
from the extra output from employing one more unit of labour)

According to the Marginal productivity theory of wages, profit maximisation requires

that the employer does not pay labour a wage which is higher than the value of its
marginal product (MRPL), because this would raise the cost of production instead which
would prevent profit maximisation.

An illustration of the marginal productivity theory of wages:

Wage

W1
W2
We MFC (SL)

MRP (DL)
0 L1 L2 Le Labour
Employed

Note:
MFC = Marginal Factor Cost which is the addition to the total cost due to employment of an
addition/ extra unit of a factor/ labour

The equilibrium wage, that the employer should pay, is 0We where 0Le is the employed
labour. At this level, the marginal revenue product is equal to the average revenue
product (ARP) which is equal to the marginal factor cost (MFC) of labour.
If the wage is raised to 0W1 (above 0We ), the firm will employ less labour as shown by
0L1 and at this level, the labour supply is greater than the demand for it and the MFC is
greater than MRP, leading to losses by the firm such that it is forced to lower the wage
rate to 0We.
If the firm pays a lower wage 0W2 (less than 0We), MFC would be less than MRP and
since workers are aware that they are paid less than their MRP, they reduce supply of
labour forcing the employer to raise the wage to 0We. Therefore, in order to maximise
40
 profits, the employer must pay a wage where Wage = marginal revenue product of labour
(MRPL)

The assumptions of the theory of marginal productivity theory of wages:

 It assumes a perfectly competitive labour market i.e. where there is no government
interference in wage determination
 It assumes that all units of labour are homogeneous in that they have the same efficiency
and productivity.
 It assumes that labour is perfectly mobile both geographically and occupationally so that
a unit of labour can be easily employed where its productivity and pay are highest.
 It assumes that both the employers and the employees can easily calculate the marginal
product and average product of labour in advance.
 It assumes that there is full employment in the labour market.
 It assumes that the law of diminishing returns operates such that as more units of labour
are employed marginal product and average product reach a maximum beyond which
productivity declines.
 It assumes that all factors of production are substitutable. For example, using labour
instead of capital and vice versa.
 It assumes that the bargaining power of management and labour is equal.

The relevance of the Marginal productivity theory of wages to developing countries:

The theory is relevant to a small extent in the following ways:
 The demand for labour usually depends on its productivity such that the highly
productive labour is paid a higher wage than the less productive labour, especially where
the piece rate system of wage payment is used.
 Supply of labour is usually determined by the wage level. Labour supply tends to be high
where the wage level is high and low when the wage level is low as explained by the
theory that labour supply reduces in case the employer pays a wage below the MRP of
labour, which would force the employer to raise the wage to increase labour supply.
 Demand for labour varies inversely with the level of wages. The higher the wage level,
the lower the demand for it.
 Most employers aim at maximising profits, therefore cannot pay labour a wage above its
MRP.
 In some cases, Marginal product of labour can be determined, for example in case of
piece rate system of wage payment.
However, the marginal productivity theory of wages is largely irrelevant to
developing countries in the following ways;
 There is no economy with conditions of perfect competition, yet perfect competition is
the basis of this theory.
 It ignores government influence in fixing wages for labour regardless of the marginal
revenue product of labour. The government may set a high or low wage basing on her
social, political, or economic objectives, not basing on marginal productivity of labour.
 Labour and employers cannot determine the exact value of marginal product since output
is produced by many factors. Moreover, the MRP of labour cannot be constant.

41
  Labour is not homogenous as assumed by the theory. It varies in both efficiency and
productivity.
 Production is not a result of labour only, but also other factors employed in the
production process, which makes it difficult to isolate the contribution of labour to be
able to determine its payment.
 The theory does not explain wage differences in an economy among individuals,
occupations, and between regions, not based on marginal productivity of labour.
 The theory ignores the fact that employers/capitalist sometimes exploit labour by paying
wages that are less than the marginal revenue product of labour.
 Labour is not perfectly mobile/labour tends to be mobile, this is because of a number of
factors such as specialisation of labour and geographical barriers which prevent labour
from moving to where it is most productive and best paid.
 The theory ignores the role of trade unions in bargaining for high wages. Strong trade
unions usually influence the level of wages paid to their members not necessarily basing
on Marginal revenue product of labour.
 Employers at times use subsistence level (cost of living) as the basis of wage
determination, yet the cost of living maybe below or above the marginal revenue product
of labour which is the basis for wage determination according to the marginal
productivity theory of wages.
 It ignores the historical factors in wage determination. Wage rate in developing countries
depends on historical factors rather than on marginal productivity of labour. The salary
structure used to pay labour is inherited from the colonial times and not based on MRPL.
 The law of diminishing returns, on which the theory is based, does not hold all the time;
there may be increasing returns instead which makes the theory inapplicable since it only
applies where the law operates.
 Wages are usually determined by the level of education, training, or special talent of
individual workers where the highly educated or those with special talent earn much
more than those who are not instead of basing on the level of marginal productivity of
labour.
 It is difficult to determine/measure the marginal product of labour in some sectors such as
the services sector, such that employers base on other criteria other than the marginal
revenue product of labour to determine wage paid to labour

THE MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION:

The marginal productivity theory of wages is just a subset of the marginal productivity theory of
distribution (theory of factor pricing) formulated to explain the determination of factor prices,
such as wages, rent, and interest under conditions of perfect competition.

The marginal productivity theory of distribution ‘states that a factor of production is paid a
reward, which is equal to the value of its marginal product’
In order to maximise profits, the entrepreneur must pay the factor a value equal to the value of
its marginal product. She/he cannot afford to pay the factor more than the value of its marginal
product since that will not maximise profits. While at the same time, due to perfect competition,
she/ he cannot pay the factor less than the value of its marginal product since the

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factor will have to move to another employment where it can receive payment that is equal to the
value of its marginal product. Therefore, MC of a factor = MRP of the factor at equilibrium.
Marginal factor cost (MFC) is the extra cost incurred on one more unit of the factor employed.

An illustration of the marginal productivity theory of distribution

The assumptions of the theories of marginal productivity theory of distribution:

 It assumes perfect competition in the factor market.
 It assumes that there is no government intervention/interference in the determination of
factor prices.
 It assumes that all units of the factors are homogeneous in that they have the same
efficiency and productivity.
 It assumes perfect mobility of factors of production.
 It assumes that output can be quantified into measurable units.
 It assumes that marginal product of factors of production can be calculated.
 It assumes full employment factors of production.
 It assumes that the law of diminishing returns operates such that as more units of the
factor are employed, marginal product and average product reach a maximum beyond
which productivity declines.
 All factors of production are substitutable. For example, labour can be used instead of
capital and vice versa. The entrepreneur should be able to substitute one factor for
another until the marginal product of all the factors divided by their respective prices is
equal.

To a minor extent, the theory is relevant in the following ways:

 The payment to a factor according to the value of the marginal product where output can
be quantified/ measured

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 Factor inputs tend to be relatively homogeneous e.g. unskilled labour, land and money
capital.
 Technology in many developing countries has tended to be constantly rudimentary hence
making the theory applicable.

Limitations/irrelevancies/inapplicability of the Marginal productivity theory of

distribution:
To a larger extent the Marginal productivity theory of Distribution is irrelevant to
developing countries in the following ways:
 It is difficult to measure the marginal product of factors of production is some sectors
 Factors of production are not fully employed as assumed by the theory
 There is no perfect knowledge in the factor market as assumed by the theory
 Factors of production are not homogeneous
 Existence of government intervention in fixing/determining factor prices
 It is difficult to measure the marginal physical product and reward the factors accordingly
since marginal revenue is as a result of more than one variable factor.
 It ignores other factors to reward the factors of production other than their marginal
product e.g. level of skills, level of experience, location of the factor etc.
 The use of profitability to reward factors of production is also ignored by the theory.
 The use of subsistence level/ cost of living as a basis of factor price determination is also
ignored by the theory.
 The law of diminishing returns does not hold all the time, there may be increasing
returns.

THE MODERN/ MARKET THEORY OF WAGES:

This is the demand and supply theory of wages. According to this theory, the forces of
demand for and supply of labour in the economy determine wage level. Just like any
other commodity in the market, the wage paid to labour is determined where the marginal
factor cost (MFC) of supply of labour is equal to the demand for labour or marginal
revenue product of labour (MRPL)
When a wage is less than equilibrium, demand for labour is greater than supply, which
forces the wage level to rise until the equilibrium is restored. When supply of labour is
greater than the demand for it, the wage level is forced to fall due to increase in the
number of the unemployed.

An illustration of the Market theory of wages:

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 The Shortcomings of the Market theory of wages:
 Supply of labour does not behave the same way as supply of other commodities;
therefore, it may not easily adjust according to changes in the wage and demand for
labour.
 Where the majority of job seekers are semi-skilled and unskilled, they are willing to work
for less than the equilibrium wage rather than remain unemployed.
 Where the employers can easily substitute capital for labour, workers are compelled to
accept less than the market wage instead of being laid off.

 There are other factors determining the demand for and supply of labour since demand
and supply are not independent variables, determining wages becomes very difficult.
 Government usually intervenes in the labour market by fixing the wage level either above
or below the equilibrium level.
 Labour has no staying power; labour would rather have income at present in form of
wages even below the market rate than wait in the future of which it is not certain about.

THE BARGAINING THEORY OF WAGES:

According to this theory formulated by Pigou, wages and working conditions are
determined by the relative bargaining strength of workers and their employer through the
process of collective bargaining in conditions of bilateral monopoly, where the trade
union as the sole supplier of labour meets with the employer’s association as the sole
employer and agree on the wage rate.
In these conditions, the wage rate usually is determined within a bargaining range, which
is determined within the trade union’s acceptable lower wage limit and the maximum
wage the employer’s association is willing to pay (employer’s upper limit)
The trade union does not supply labour below the unions lower wage limit and the
employer is not willing to take on labour above their upper limit.

THE CAUSES OF WAGE DIFFERENTIALS IN DEVELOPING COUNTRIES:

 Differences in the nature of jobs. Highly risky jobs attract higher wages so as to attract
people to take on such jobs as a way of compensating for such risks, yet less risky jobs
attract low wages because very many people can take on such jobs which leads to excess
supply of labour and thus low wages. At the same time those working in ‘hard to reach’
areas are usually paid more than their counterparts in easy to reach areas as a
compensation for the inconveniences.
 Differences in the level of skills/ level of education and training. Workers with higher
skills and training are usually paid higher wages because they are more productive and
efficient at work, while those with less skills and training are paid fewer wages because
they are less productive and efficient at work

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 Differences in bargaining strength of individual workers. Workers with higher
bargaining strength are usually paid higher wages because they can effectively negotiate
and induce their employers to pay them higher wages than workers with lower bargaining
strength who are unable to effectively negotiate and thus earn low wages.
 Government policy on income/wages tends to be non-matching (not consistent).
There are wage differences among workers at the same levels of employment in different
sectors and regions because of the government salary scales that vary with sectors.
 Differences in the cost of living. Employers usually set wages in line with the cost of
living to enable workers enjoy a reasonable standard of living despite changes in general
price level; High wages are paid to people working in areas where the cost of living is
high, and low wages are paid to paid to employees in regions where the cost of living is
relatively low.
 Differences in the employers’ ability and willingness to pay. Some workers earn high
wages because their employers have the financial strength and the will to pay higher
wages, while other workers are paid less because their employers do not have the
financial strength/ability to pay high wages and/or do not have the will to pay higher
wages.
 Differences in the number of hours worked –for the case of time rate system.
Workers who devote more time to work tend to earn more than those who work for fewer
hours since payment depends on the time spent at work.
 Differences in talents and natural gift. Individuals with rare talent in particular fields
tend to earn more due to their rare talent that attracts high level of earning while those
without rare talents or gifts earn low incomes.
 Discrimination in the labour market based on race, gender, age, religion, etc. This is
due to the employers bias basing on issues like race and gender when determining how
much to pay workers, those who are favoured tend to earn higher wages and those who
are not favoured are paid low yet they may be in the same field or doing the same kind
of work.
 Differences in elasticity of supply of labour. Labour with high elasticity of supply
(elastic supply) usually earns low wage since it is easily availed while labour with low
elasticity of supply (inelastic supply) is usually paid higher wages due to its relative
scarcity.
 Differences in the people’s/ workers’ ability to do work – for the case of piece rate
system. Workers who are able to do more work/produce more output earn higher wages
than those who do less/produce less output.
 Difference in strength of trade unions. Workers who are members of strong trade
unions earn higher wages since the trade unions are able to bargain/negotiate for higher
wages while the workers who belong to weaker trade unions are paid less because of the
inability of their trade unions to effectively bargain/negotiate for higher wages.
 Differences in the workers experience, expertise, responsibility or seniority.
Workers are usually paid wages basing on experience, expertise, or seniority at their job,
such that those who are more senior or those with greater expertise are paid higher wages
since such workers are more productive and efficient than their counterparts who are
less experienced.
 Differences in elasticity of demand for the products produced by labour. Workers
who produce products with inelastic demand earn higher wages, this is so because the

46
 employer is in position to charge high prices for the products in order to increase the
workers pay. On the other hand workers who produce products with elastic demand get
low wages, this is because the employers are not in position to increase the prices of the
products so as to raise money necessary to increase the workers pay.

TRADE UNIONS/ LABOUR UNIONS: This is an association of/ an organisation

formed by workers to collectively bargain for increased wages, improved conditions of
work, improved skills of members etc.

The day-to-day affairs of any trade union are run by a democratically elected executive
committee (secretariat) from among its members; these commonly comprise of the
General Secretary, the Deputy General Secretary, National Chairman, Vice National
Chairman, National Treasurer, Deputy National Treasurer and Trustee Members. Some
unions committees include heads of departments and women leaders.
All the members of the union make up the general assembly that makes all major
decisions.

The Types of trade unions:

Industrial unions: This is the union for workers in a particular industry regardless of
jobs done in that industry for example, the Uganda medical workers association which
includes all medical workers.

Craft union: This refers to one that brings together workers of a particular skill across
the industry, for example accountants.

An open shop trade union: This refers to one which does not discriminate against any
type of workers irrespective of skills, religion etc.

Closed shop trade union. This refers to one which restricts membership to only those with
special qualifications, i.e. they block employment of non members e.g. UNATU.

General trade union. This refers to one which accepts all workers and embraces all
trade unions e.g.NOTU.

Examples of trade unions in Uganda:

 Uganda National Association of Teachers’ Union (UNATU).
 Makerere University Academic Staff Association (MUASA).
 The Uganda Medical Workers’ Association (UMWU)
 The Uganda Hotel, Food, Tourism and Allied Workers’ Union( UHFTAWU)

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 BASIC CONDITIONS FOR THE FORMATION OF TRADE UNIONS:

 Unity. A trade union can only exist where workers disregard race ,nationality, tribal and
religious differences, therefore the union must be based on them ‘United we stand and
divided we fall’.
 Dissatisfaction. Labour which is dissatisfied with either wages or conditions or general
behaviour of the employers will facilitate the formation of trade unions.
 Consistence of workers. It is those workers that are likely to work for a long period of
time in the same occupation that would want to improve the conditions/services of work.
 Great dependence on wage. A worker who has no other sources of income would
require that his or her wage be secure and good enough for his or her subsistence.
Workers with other sources of income do not mind about trade union activities.

The Objectives of trade unions:

 To bargain for higher wages and other allowances through collective bargaining.
They aim at negotiating for an increase in wages especially when the cost of living increases which
is hard with an individual worker. This is achieved through collective bargaining.
 To negotiate for improvement in the working conditions. They aim at improving working
conditions so as to improve workers’ welfare or standards of living e.g. securing better housing
facilities, favourable working hours etc.
 To protect workers against unfair dismissal by employers. Trade unions aim at ensuring
that there is some degree of job security for their members. They use tools like court action when
members are unfairly dismissed, sexually harassed, etc which reduces unfair treatment.
 To improve the skills of the members/workers by organising refresher courses. They
aim at improving efficiency of their workers through training so that they are employable and paid
highly
 To advise government on manpower planning. Trade unions aim at advising the
government on issues concerning the manpower needs of the country, such that the man
power trained matches the demand in the various sectors of the economy.
 To forge unity among the members. Trade unions are formed to devise ways of creating
unity or a sense of togetherness by ensuring consistence and adequacy of membership so as not
to be exploited by profit minded employers.
 To provide an effective means of expression for the workers on problems of society
and politics. They agitate for the basic rights for the workers and other people in society on
issues such as political independence, democracy and good governance as stipulated by labour
law based on international labour organization standards.
 To persuade government to pass legislation in favour of the working class. They
advise the government on issues concerning workers like on wage legislation policy.

The conditions under which workers are justified to demand for wage increases
include the following:

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 When there is rising cost of living in the economy due to inflation. In this case, the
workers are justified to demand for higher wages to be able to maintain their standard of
living.
 When there is an increase in profits/When high/abnormal profits are earned by the
employer. The workers are justified to demand for higher pay to benefit from the
increased profitability.
 When there is improved productivity of workers/ where workers have high skills to
offer. The workers are justified to demand for higher wages to reward the workers’ effort
for their contribution towards the increase in the firm’s profits.
 When the wages being offered are lower than/below the government set minimum
wage. Workers are justified to demand for the wage increment to conform to the
minimum wage level.
 In case the employer has failed to implement/effect an agreed upon periodical wage
increment as expected in earlier negotiations with the workers.
 If there is an increase in the risks associated with the job. This necessitates a higher
pay to workers as compensation for the increase in the job risks.
 When workers doing a similar job or in similar employment elsewhere are being
paid a higher wage, such workers are justified to demand for a wage increment to be at
the same level with their counterparts.
 When there is general prosperity in the economy, workers are justified to demand for
wage increment because entrepreneurs are in position to pay higher wages due to high
incomes and prosperity in the economy.
 In case of inelastic demand for goods of that particular industry. The workers are
justified to demand for wage increase because the employer is able to raise the market
price in order to cover the extra cost due to the wage increase without negatively
affecting sales.
 If there is increased workload/hours of work. The workers are justified to demand for
higher pay to compensate for the extra work.
 When there has been an increase in prices of products produced by the workers.
The workers are justified to demand for a wage increase because they are sure the
employer can easily raise that money to pay them.
 When labour has inelastic supply or where there is full employment in the economy,
the workers bargaining strength is high since the employers cannot easily find workers to
replace existing labour in case they move to better paying jobs.
 Where labour has high skills to offer which must be highly paid for.

How trade unions can help in increasing wages for workers:

 By informing workers about the conditions in the labour market, and the workers’ rights
and privileges such that the employer does not exploit them.
 The trade union can regulate the marginal product of labour. Trade unions can persuade
employers to use up to date methods of production and organisations in order to raise the
marginal productivity of labour, which in the end helps to improve bargaining power of
workers for wage increments.

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 Trade unions can support education and training for their members to increase the
efficiency and productivity. This helps to increase demand for their services hence
compelling employers to pay higher wages.
 The trade union can restrict labour supply by convincing the government or other
employer to restrict the giving of work permits to immigrants and practice closed shop
activities where employment is restricted to only the members of the trade union to
ensure that the existing workers are paid a fair wage.
 The trade unions may ask for a reduction in the working hours and advocate for longer
apprenticeship (internship) in order to force employers to increase wages since demand
for labour will be greater than its supply.
 The trade unions can convince the government to fix a reasonable minimum wage.
 The trade unions can help to increase the demand for labour. The trade union may
persuade workers to increase their productivity and efficiency in order to lower average
cost of production that would persuade employers to increase wages.

METHODS/TOOLS USED BY TRADE UNIONS TOACHIEVE THEIR

OBJECTIVES/ SETTLE THEIR DISPUTES:
 Collective bargaining/ Round table discussions. This is the process of negotiations
between trade union representatives and the employer’s representatives on the conditions
of work and other rights of the workers e.g. they negotiate for higher wages, better
working conditions etc. The two parties reach and enforce an agreement for higher wages
and better conditions of work. The success of collective bargaining depends on the
relative bargaining strength of the Trade union and the employer’s association.
 Industrial arbitration/Mediation. This is when neutral/ an independent body/ third party act
as an arbitrator or a mediator to settle disputes between the workers and their employers e.g. the
minister for labour and social welfare.
 Closed shop: This is when trade unions stringently restrict employers to employ only the workers
who are members of the trade union/labour in a given field or not to employ more workers beyond
a certain limit. This makes the required skills in the labour market scarce forcing the employer to
meet the demands of the workers

 Go slow tactics. This is when trade unions instruct their member to put in less effort at their work
so as to reduce the level of output and profitability. With reduced output and profits, the employer
may be forced to meet the demands of the workers. .
 Sit down strike. This is when workers put down their tools and refuse to work in order to force
the management to consider their demands. During the time of strike, the employer loses a lot of
revenue and consequently he/she may be forced to meet the demands of the workers.
 Sabotage/ Press/media wars/boycott/decampaigning. This is when trade unions persuade
consumers/ the public not to buy or to boycott the products of a particular industry so as to cause
losses until their demands are met. Workers may also embark on black mailing the employer
through the newspaper, television sets and other public means.
 Using industrial court/court action. This is where trade union members lodge in a case
with the industrial court seeking judgment of the court.

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 Strikes/ Go on strike/ violent strike. This is when workers get involved in destruction of
property like machines, buildings, vehicles, etc. to compel / force the employer to meet their
demands. This is usually a tool of last resort.
 Picketing/ Lock out. This is when a group of workers physically position themselves at the
entrance/ gate of the business premises or place of work during a strike to persuade others not to
go to work and sometimes punishing those who want to continue working. This makes the strike
popular by isolating the employer and thus feeling the impact which forces him/her to meet the
demands of employees.
 Abduction of top management officials/ key members of management of the
business. A key member of management or the employer’s family member is abducted and
treated as a hostage which action forces the management/ employer to meet or respect the
demands of the workers.
 Staging Demonstrations: This involves protests of workers against the employer
intended to force the employer to comply with their demands. This is done using
banners/placards.

The advantages of trade unions in an economy:

 Trade unions promote unity among workers because they advocate for joint action that is
best achieved when there is unity among the members.
 Trade unions advocate for and promote human rights and dignity by negotiating for good
working conditions and fair treatment of workers all of which promote human rights and
dignity.
 Trade unions help to increase productivity of workers through activities organised by
trade unions such as lectures in career development and training workshops for workers.
 Trade unions help to promote the welfare of workers by advocating for and ensuring
higher wages and better conditions of work.
 Trade unions help government come up with sound labour and wage policies. The
government can incorporate ideas and advice trade unions offer to government
concerning the labour requirements in the economy to come up with plans and policies
that address labour issues to increase efficiency and productivity of labour and other
factors of production in the economy.

The disadvantages of trade unions in an economy:

 Strikes employed by the trade unions disrupt production and cause financial loss to firms.
 Firms incur high production costs due to pressure of higher wages by the trade unions.
 Trade union activities can cause high unemployment in the economy. Their activities fuel
industrial unrest and high cost of labour, which reduces demand for labour and adoption
of capital-intensive methods of production leading to high unemployment.
 Wage-push inflation arises due to the continuous demand for higher wages by the trade
unions that forces employers to keep raising the market prices for goods and services in
order to cover the ever-rising cost of labour.
 Trade unions promote income inequality in the economy. This is due to the wage
differences created arising from differences in bargaining strength of individual trade
unions.

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  Trade unions cause disunity among workers. This is due to segregation between those
who are members of the union and those who are not.

Factors that influence/Affect/ determine the strength of trade unions in an

economy:
 The amount of funds the trade union has to finance its activities. Having enough
funds enables the trade union to adequately finance its activities as well as sustain its
members during a strike for a time enough to induce the employer to submit to the trade
union’s demands, hence having high bargaining power. While, trade unions that lack
adequate funds to run their activities have low bargaining strength because they cannot
adequately finance industrial action i.e. they cannot sustain a strike.
 The level of interference by government into trade union affairs. High government
interference brings about low bargaining strength of the trade unions because their ability
to negotiate for higher wages is undermined by government restrictions, on the other
hand, absence of or minimal government interference in the operations of trade unions
strengthens their bargaining power since they are free to carry out their activities as they
wish.
 The management and leadership skills. High leadership skills ensure high bargaining
strength of the trade unions due to efficient management of the affairs of the trade unions
by the highly skilled trade union leadership, while absence of or low leadership skills
result in inefficiency in management of trade union affairs that weakens the trade unions.
 The size of membership of the trade union. Trade unions with a sizable membership
have a strong bargaining power because they are able to raise adequate funds from
members’ subscriptions and other contributions to finance Union activities, which is not
possible in case of trade unions with small membership.

 The elasticity of demand of the commodity the members of a given trade union
produce. The trade union’s bargaining power is strong in case the commodity has
inelastic demand because the employer is more willing to meet the union’s demand for
higher wages. The employer is able to pay the higher wage by charging higher price for
the commodity; however, elastic demand for the commodity leads to a low bargaining
strength because it the employer is reluctant to raise wage level since he cannot extend
the cost to his consumers.
 The level of unemployment in the economy. High level of unemployment results in low
bargaining strength of labour for wage increases because their employers can easily find
other workers willing to work given the existing working conditions.
 The level of productivity of the workers. The trade union is strong where its members
are highly productive because the employer is more willing to pay a higher wage while
low labour productivity results in low bargaining strength of the trade union because are
less productive at work.
 The degree of organisation of a trade union. Good, efficient organisation of a trade
union ensures efficiency in management and negotiation for higher wages hence a strong
bargaining strength while poor management lowers bargaining strength of the trade
union.
 The prevailing economic conditions in the country. Poor economic conditions weaken
the bargaining strength of trade union because employers are reluctant to raise wages due

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 to low economic activity, high level of unemployment, and low profitability associated
with such economic conditions. Good economic conditions associated with high level of
economic activity, and high profitability raise the bargaining strength of workers since
employers can afford, and are more willing to pay higher wages.
 Level of unity among members. Disunity among members limits the strength of trade
unions because they cannot have joint action since they have varying views. on the other
hand unity among members makes trade unions strong because they are able to carry out
joint actions since the views are the same.
 Level of development of infrastructure. Poor infrastructure limits the strength of trade
unions since it becomes difficult to organise members for industrial action. On the other
hand good infrastructure e.g. good communication makes trade unions strong because
they easily mobilise members for industrial action
 Level of accountability of leaders. High level of corruption limits strength of trade
unions because leaders easily accept bribes from employers and give up on the cause of
trade union while transparency among leaders promotes trade union because they cannot
easily bribed and therefore remain strong on the cause of trade union

 Level of demand for the product produced by the members. High demand for the
product makes the trade union strong because the employer is willing to increase wages
since his revenue is high. On the other hand low demand for the product produced by the
members makes trade unions weak because the employer cannot accept to increase wages
since his revenue is low.
 Level of awareness of the workers for their rights. Trade unions are made strong
where workers are aware of their rights because workers participate actively in the
activities of trade unions e.g. strike, worker shops e.t.c. It builds cohesion in the trade
union while lack of awareness of their rights makes trade unions weak because most
workers don’t participate in trade union activities such as strikes.
 Availability alternative sources of income/transitory incomes. Having incomes from
side jobs limits the strength of trade unions because workers are not committed to trade
union activities since they have alternative sources of income, while lack of side incomes
makes trade unions strong because members get committed to trade union activities since
the job is their only source of livelihood.
 Proportion of the wage bill to total cost. High proportion of the wage bill to total cost
limits the strength of trade unions because the employer finds it costly to increase wages
while small proportion of wage bill to total cost makes trade union successful because the
employer easily increases wages when demanded by workers since it is cheap.

Characteristics of trade unions in Uganda:

 Most trade unions are financially weak. This is due to low membership and low
subscription.
 Most trade unions have an amorphous membership. There is lack of permanent and firmly
established membership as some members are migrants and target workers ever changing jobs
and places making trade unions weak.
 The workers mostly lack unity. Trade unions tend to be based on religion, political, tribal and
racial differences/ affiliations this undermines cohesion needed for effective joint action.

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 Most of them have small membership. Trade unions mainly comprise a small number of
salaried workers who constitute a small proportion of the total labour force which puts trade unions
in a weak bargaining position.
 They are mainly urban based. The activities of trade unions are mainly based in urban areas
where secondary and tertiary sectors are common with little or no impact in rural areas where
agriculture is mainly practiced.
 Most trade unions have poor leadership. This is mainly due lack of adequate manag ement
skills which cannot properly articulate the interest of members of trade unions.
 They are largely politically motivated. Most trade unions tend to base their activities or
concerns on political issues or grounds which puts them in a weak bargaining position
 Trade unions do not enjoy autonomy. This is due to government interference in their
activities, because government perceives them as having hidden political motives.

PROBLEMS/CHALLENGES FACED BY TRADE UNIONS IN DEVELOPING COUNTRIES:

 Limited membership/low level of uninisation. Most trade unions have small
membership. This is because not many workers join trade unions due to factors like the
inability to raise membership fee that is a requirement to be a member of the trade union,
apathy, and ignorance of workers about the affairs and benefits of trade unions.
 Limited funds. Most trade unions do not have adequate funds, which makes it difficult
for them to run the affairs of the union effectively; and during strikes, members cannot
stay out of work for a long time, which brings about failure of the strikes.
 Limited leadership skills. There is poor and inefficient leadership this is so because
members of the executive lack adequate management skills since they are elected from
among the workers themselves yet the trade unions do not have adequate funds to hire
and maintain skilled managers making it difficult for the trade unions to effectively
achieve their objectives.
 High level of unemployment. Trade unions fear to demand for higher wages because
the employer can easily dismiss workers and replace them with those who are willing to
work for what she/he can offer.
 Political interference. Trade unions are not fully autonomous. This is due to high level
government interference in the activities of trade unions, which restrict trade union
activities hence making it difficult for them to achieve their objectives.
 Poor/ weak economic performance. During such a period it means there is low
profitability of firm. This implies that trade unions are not justified to demand for higher
wages because of the inability of employers to pay higher wages due to low profits.
 Poor infrastructure/poor communication. This makes coordination of the activities of
trade union difficult thus limiting performance of trade unions.
 Existence of transitory incomes/ Availability of alternative sources of
income/Limited commitment of members. Transitory earnings are the short-term
earnings that arise from side jobs or windfall gains, which makes it difficult for trade
union members to unite for a common goal.
 Disunity of the members/poor organisation of trade unions i.e. organised on the
basis of tribe, religion and political affiliation. This makes it difficult for the union to
organise joint action since members usually have varying opinions.

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 Low level of accountability. The embezzlement of funds by the union leaders
discourages members from paying the subscription fees and thereby denying the unions
the funds necessary for running the activities of the union.
 Limited skills of members. This weakens their bargaining power due to their low
productivity and efficiency and thus can easily be replaced.
 Low demand for products produced by members. This reduces their bargaining power
since the employer cannot easily increase the prices of such products so to meet their
demand of pay rise.
 Apathy/ ignorance of the workers of their rights. Workers are reluctant to participate
in trade union activities such as strikes; this kills the cohesion and therefore reduces their
bargaining power.
 High proportion of the wage bill to the total costs. This weakens the ability of trade
unions to bargain for wage increase since the employer finds it very expensive to
continue employing labour and therefore may resort to use of capital intensive
technology.

THE EXTENT TO WHICH TRADE UNIONS HAVE ACHIEVED THEIR

OBJECTIVES IN UGANDA
To greater extent trade unions in Uganda have failed to achieve their objectives reasons
being;
 Failure to improve wages and fringe benefits to the desirable level. e.g. UNATU for
salary of teachers. This is because of low bargaining power with the government and
private entrepreneurs.
 They have failed to improve working conditions. Workers still live in poor and
hazardous working conditions e.g. poor housing and other facilities.
 Failure to protect all members against unfair treatment. There is still unfair dismissal
of workers in case of sickness, disagreements at work, etc.
 Failure to improve skills and productivity of members through training. This is due
to high costs of training involved, corruption among trade unions’ leaders, etc.
 They have failed to advise the government on development process. e.g employment
policy, manpower planning etc.
 They have failed to maintain consistent membership. There are still migrant labourers
and target workers leading to temporary membership.
 They have failed to fully forge unity among members. There are still elements of
religious, tribal and political differences making it hard for them to achieve their
objectives.
 They have failed to protect the rights of their members as laid down in the labour
law.

To a lesser extent, trade unions in Uganda have managed to achieve some objects reasons being that:
 There has been some improvement in wages of their members e.g. medical workers’
union and MUASA who have fully bargained for increase in salaries of members.

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 There has been some improvement in working conditions e.g. MUASA have
negotiated for better pay for its members.
 There has been improvement in skills of members. To some extent there has been
training and capacity building workshops and seminars which have improved of
members.
 They have tried to advise the government on wage policy and manpower planning.
This is the case with MUASA.
 They have tried to create unity among workers from different areas of the country.
This has increased cohesion among members.
 They have tried to seek, promote and maintain human rights of members. This is
through courts of laws, etc.

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