The Labor Market

Product Markets • Markets in which firms sell goods and services to households or other firms • Products made from the economy‟s resources Factor Markets • Markets in which resources are sold to firms – Resources include • Capital, land, labor, and natural resources • Resources are sometimes called factors of production

Product and Factor Markets

households demand the good or service produced by that firm. • Inputs are demanded by a firm if.Derived demand • It is demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce. and only if. .

• Inputs can be complementary or substitutable. This means that a firm‟s input demands are tightly linked together. .Inputs: Complementary and Substitutable The productivity of an input is the amount of output produced per unit of that input.

Labor Supply Labor supply is the willingness and ability to work specific amounts of time at alternative wage rates in a given time period. .

MPL.Marginal product of labor (MPL) It is the additional output produced by one additional unit of labor The marginal revenue product (MRP) MRP of a variable input is the additional revenue a firm earns by employing one additional unit of input. times the marginal product of labor. PX. • MRPL equals the price of output. ceteris paribus. .

Wage Rate (dollars per hour) The Classical View of the Labor Market The labor supply curve illustrates the amount of labor that households want to supply at the particular wage rate. The labor demand curve illustrates the amount of labor that firms want to employ at the particular wage rate. Labor supply w2 w1 B A 0 q1 q2 Quantity of Labor (hours per week) .

• Higher wages represent more goods and services and thus induce people to substitute labour for leisure. • A worker might also respond to higher wage rates by working less. . not more • Income Effect of Wages – An increased wage rate allows a person to reduce hours worked without losing income. • Substitution Effect of Wages – An increased wage rate encourages people to work more hours (to substitute labour for leisure).

Classical economists believe that the labor market always clears If labor demand decreases. . Everyone who wants a job at W* will have one. the equilibrium wage will fall. There is always full employment in this sense.

Elasticity of % change in quantity of labor supplied = labor supply % change in wage rate .The elasticity of labor supply is the percentage change in the quantity of labor supplied divided by the percentage change in wage rate.

Labor Demand The demand for labor is the quantity of labour employers are willing and able to hire at alternative wage rates in a given time period Derived demand is the demand for labor and other factors of production resulting from (depending on) the demand for final goods and services produced by these factors .

• The quantity of labor demanded also depends on its price (the wage rate). Wage Rate (dollars per hour) Demand for labor W1 W2 A B 0 L1 L2 Quantity of Labor (hours per month) .The Labor-Demand Curve • The number of workers hired is not completely dependent upon the demand for the product.

Marginal physical product (MPP) is the change in total output associated with one additional unit of input Marginal change in total output = physical product change in quantity of labor .

• However in recent years due to the IT boom and the huge amount of revenue generated by it the IT industry can also be included within the jurisdiction of the large scale industrial sector . man power and a have influx of capital assets • The term 'large scale industries' is a generic one including various types of industries in its purview • All the heavy industries of India like the Iron and steel industry. automobile manufacturing industry fall under the large scale industrial arena.LARGE SCALE INDUSTRIES • Large scale industries refers to those industries which require huge infrastructure. textile industry.

and invest more capital.Define : Large scale industries use heavy machinery and equipment. cement . employ many workers. It includes the production of different kinds of products like cars.

All these industries help to develop agriculture. communication facilities and other industries. transport. It means development of large scale industries is almost essential for the development of heavy and basic industries . heavy machineries. exploring of oil and its purification. heavy electrical equipments. industries of heavy and basic industries for its development.The Importance of Large Scale Industries Every country needs exploring of coal. ships and aero planes. iron and steel. heavy chemicals.

Improvement in Productivity 2. Import Substitution 3.FACTORS 1. Export Promotion .

Improvement in Productivity: • In large scale industries work is distributed among the labour according to their efficiency which improves the productivity. • It enables the consumer to get commodities at a cheaper rate. . • These industries also use huge modern capital which raises productivity and reduces cost per head.

chemical fertilizers and other consumer goods. • Due to the development of large scale industries.Import Substitution: • Capital goods and consumer goods which are imported from the foreign countries can be produced inside the country through large scale industries. heavy electricity. all these commodities are produced inside the country and there is no need of import which is known as import substitution . unless we develop large scale industries. • Our country will depend upon foreign countries on heavy chemicals.

spices of different types. we are now able to export engineering products. . heavy electric products and other industrial products. and cotton clothes to foreign countries. jute. • Due to the development of large scale industries. jute products. tea. we exported skin. • It means large scale industries have changed the pattern of export and increased the quantity of export. • In the old days.Export Promotion: • Large scale industries change the pattern of export.

cotton textiles. They also require huge capital investments.Characteristics of a large scale industry Large-scale industries are located in urban centers and are in the public sector or run by big industrialists. e.g. .

large-scale production permits of a decreased unit-cost production. and of social development. Large-scale production causes the concentration of workers. 3. Increased output. with the result that small industries are driven out of business .Advantages Of Large-Scale Production 1. land. and the distribution of this increase among the various factors of production (labor. 2. and capital) creates problems both social and economic. of government. including the enterpriser. and this concentration raises problems of housing.

which always accompanies large-scale production. (1) Division of labor. whereby each worker can confine his attention and efforts to the particular operation in which he is the most proficient.The efficiency of large-scale production are five in number. for example. something which is usually impossible in small-scale production. (5) The large-scale producer can better afford to carry on expensive experiments with the idea of improving his product and of lessening unit cost . and equally as well known that large producers are able to economize in the matter of advertising. It is a well-known fact that large purchasers can buy at a cheaper price than small ones. and other by-products which the local butcher allows to go to waste. (2) The latest and most improved machinery can be utilized. In the slaughtering industry. a large plant can make use of hair. blood. (4) Large-scale industries are better able to utilize their by-products. permits the use of varied talents and aptitudes. and of getting their products in the hands of retailers through traveling salesmen. (3) Large-scale production also permits of economies in buying raw materials and in selling finished products.

Difference: Large Scale. promoter or entrepreneur as one person or two persons are not able to provide capital for construction of large scale industries. • For large scale industries. Small and Cottage Industry • The difference among the industries is defined on the basic of use of capital equipment according to instruction of the Government. industries whose investment on fixed capital like machineries and equipments is less than Rs. . 35 lakhs is known as Small Scale Industries. INVESTMENT • According to instruction of the Government of 1985.

So the entrepreneurs or promoters of large scale industries collect the required capital through the shares of small values. But small scale industries are not able to get the required capital through all these sources. They also get loan from the market through different ways. .

the extent of market is more for large scale industries. . Large scale industries cannot function if they do not get adequate market.MARKET As large scale industries produce more than small scale industries. Small scale industries can manage themselves with their local market but large scale industries cannot.

petrochemicals etc • small scale industries:-small scale industries that employ less number of labourers and less amount of capital as in units that make sewing machines.LABOUR • large scale industries :-large scales industries that employ thousands of labourers Example:-iron and steel. . cycles etc. fans. cement.

. cycles etc. fans.MACHINERIES Large scale industries: large scales industries used for heavy machineries Small scale industries: small scale industries that less amount of capital as in units that make sewing machines.

FINANCIAL INSTITUTIONS .

Financial institutions generally fall under financial regulation from a government authority. a financial institution acts as an agent that provides financial services for its clients. Provides for efficient flow of funds from saving to investment by bringing savers and borrowers together via financial markets and financial institutions .In financial economics.

Financial institutions • Also called financial intermediaries • Facilitate flows of funds from savers to borrowers .

. resulting in savings. lender. Most DSUs are businesses or governments. • Deficit spending units (DSUs) have spending for the period that exceeds income. – Other words for “SSU” are saver. or investor. Most SSUs are households.• Surplus spending units ( SSUs) have income for the period that exceeds spending. – Another word for “DSU” is “borrower”.

Why there is need of finance 1) Long term 2) Medium term 3) Short term .

• Short term capital is needed for purchase of raw material .• Long term capital is also known as block capital or fixed capital. maintenance of machines and building etc. it is needed to acquire -fixed and permanent assets • Medium term capital is required for repairs. and to meet day to day expenses . replacements.

Types of financial institutions in India • • • • Term lending Refinance institutions Investment institutions State level institutions .

Term lending • • • • • • IFCI IDBI ICICI IIBI EXIM TFCI Refinance Institutions • NABARD • SIDBI • NHB .

Investment Institutions • LIC • GIC • UTI State Level Institutions • SFC .

2 by center govt. 6 by shareholders) .-full time chairperson .IFCI (Industrial Finance Corporation of India) • It was established in 1948 • First development bank of India • Objective was to make medium and long term credits more readily available • Management .BOD total 12 members(4 by idbi.

Issue of shares and bonds .Resources of IFCI . state govt and local authorities .Ownership capital . IDBI and CENTER GOVT .Accepting deposits from public.Borrowing from RBI.

• (a) To provide long and medium-term credit to industrial concerns engaged in manufacturing. • (d) guarantee loans and deferred payments. mining. • (b) The period of credit can be as long as 25 years and should not exceed that period.Objectives • The primary role of IFCI is to provide „direct financial assistance‟ on medium and long term basis to industrial projects in the corporate and co-operative sectors. The objectives of the corporation are stated below. shipping and electricity generation and distribution. • (c) To grant credit to a single concern up to a maximum amount of rupees one crore. This limit can be exceeded with the permission of the government under certain circumstances. .

• (g) assist projects under co-operatives and in backward areas. . • (f) assist in setting up new projects as well as in modernization of existing industrial concerns in medium and large scale sector.• (e) underwrite and directly subscribe to shares and debentures issued by companies.

Functions The main functions of I. expansion. . • iii) Subscribing or underwriting the issue of shares and debentures by industries. are as under:• i) Granting loans and advances for the establishment. Such investment can be held up to 7 years.F. both in rupees and foreign currencies.C. diversification and modernization of industries in corporate and co-operative sectors.I. • ii) Guaranteeing loans raised by industrial concerns in the capital market.

• viii) Procuring and reselling equipment to eligible existing industrial concerns in corporate or co-operative sectors. jute. marketing and administrative assistance to any industrial concern for the promotion. • vi) Providing technical. management and expansion of the industrial concern. engineering goods. cotton textiles.• iv) Guaranteeing credit purchase of capital goods. • v) Providing assistance. under the soft loans scheme. imported as well as purchased within the country. • ix) Rendering merchant banking services to industrial concerns . • vii) Providing equipment (imported or indigenous) to the existing industrial concerns on lease under its „equipment leasing scheme‟. to selected industries such as cement. legal.etc.

IDBI (industrial Development. . a deputy governor nominated of RBI.O in Mumbai 11 branch offices • It is managed by a chairman and MD appointed by central govt. Bank of India) • Set up in 1964 • It was fully owned subsidiary of RBI but in 1976 delinked from RBI and made as autonomous body of GOI • H. 20 other directors.

• The govt holds the majority (58.2004 it has renamed as IDBIL. .47%) shares of IDBI LTD. It has been accepted as a deemed banking co under banking regulation act. • During last 40 years IDBI has given a qualitative dimension to the process of industrial development of the country.• With effect from 1 oct.

it coordinates the working of other financial institutions. • (4) It undertakes other activities for the development of industry. As an apex financial institution. • (3) It provides credit to large industrial concerns directly. • (2) It assists in the development of other financial institutions. .Thus the role of IDBI may be stated as under: • 1.

promotion and development of key industries and diversifications of industrial growth. LIC. . Its objectives include • (1) Co-ordination. ICICI. • (3) Planning. UTI. • (2) Supplementing the resources of other financial institutions and thereby widening the scope of their assistance.Objectives • The main objectives of IDBI is to serve as the apex institution for term finance for industry in India. Commercial Banks and SFCs. regulation and supervision of the working of other financial institutions such as IFCI .

Function • The IDBI has been established to perform the following functions• (1) To grant loans and advances to IFCI, SFCs or any other financial institution by way of refinancing of loans granted by such institutions which are repayable within 25 year. • (2) To grant loans and advances to scheduled banks or state co-operative banks by way of refinancing of loans granted by such institutions which are repayable in 15 years.

(3) To grant loans and advances to IFCI, SFCs, other institutions, scheduled banks, state co-operative banks by way of refinancing of loans granted by such institution to industrial concerns for exports • (4) To discount or rediscount bills of industrial concerns. • (5) To underwrite or to subscribe to shares or debentures of industrial concerns. • (6) To subscribe to or purchase stock, shares, bonds and debentures of other financial institutions. • (7) To grant line of credit or loans and advances to other financial institutions such as IFCI, SFCs, etc. • (8) To grant loans to any industrial concern. • (10) To guarantee loans raised by industrial concerns in the market or from institutions

• (11) To provide consultancy and merchant banking services in or outside India. • (12) To provide technical, legal, marketing and administrative assistance to any industrial concern or person for promotion, management or expansion of any industry. • (13) Planning, promoting and developing industries to fill up gaps in the industrial structure in India. • (14) To act as trustee for the holders of debentures or other securities

(1) Small Industries Development Bank of India (SIDBI) • (2) IDBI Bank Ltd. • (3) IDBI Capital Market Services Ltd. • (4) IDBI Investment Management Company .The following are the subsidiaries of IDBI.

. • technical and managerial aid to increase production and employment. at the initiative of world bank • Authorized capital of 60 crores and issued capital 22 crores The objectives of ICICI are • to encourage establishment of new industries. • to help in expansion and modernization.ICICI Industrial Credit and Investment Corporation of India (ICICI) • Established in 1955 As a public ltd co.

international business and special assets mgt . project finance. • ICICI is now the largest bank with total assets of more than 3000 billions • More than 700 branches and over 2200 ATM spread all over the country • It mainly deals in • Retail banking.• In October 2001 . With effect from MAY 2002 IT IS SIMPLY ICICI bank .BOD Approved ICICI LTD AND ICICI BANK LTD. wholesale banking.

• It was the first to introduce e-commerce. portals to allow accounts and information on line. • They are the first to introduce mobile banking.• Icici is known for its many firsts. low cost branches innovations are key reasons of icici success. • Technology. • It has the largest no of call centers. . • Foreign financial investor own around 38% shares . on line financial information. • -it was first Indian co to listed in New york stock exchange. strategy.

established in 1982 under the Export-Import Bank of India Act 1981. • Established on1st JAN. • Exim started its working from march 1982 • The issued capital is wholly subscribed by center govt .EXIM Export-Import Bank of India is the premier export finance institution of the country. • Exim bank came into existence when international finance division of idbi was transferred to exim bank in 1982.1982. • Authorized capital 1000 crores and paid up is 650 crores.

Assitance by exim • Fund based • Pre shipment credit • Foreign currency • Post shipment credit • Deemed exports • Loans to commercial banks for bills discounting • Finance for consultancy and technology • Non fund based • Guarantees .

public sector banks Resources of EXIM -GOI -RBI -any organization approved by GOI TYPES OF ASSISTANCE • -fund based • -non fund based . It has to coordinate the working of those institutions which can promote international trade. • Management is MD+17 other directors representing govt.• The main objective of exim is to provide financial assistance to exporters and importers.RBI.ECGC.

Refinancing instituitions Are those which do not give finance directly but they create such structure by which the funds are allocated up to the minimum level .

O IN Mumbai.handicraft and village industries • It mainly deals in three types of functions • -credit .ssi .developmental . planning and operations of agriculture .Nabard-national bank for agriculture and rural development • Started functioning from 1july 1982 • Set up with an initial capital of 100 crores.regulatory functions . with 28 regional and 391 district offices • It is an apex orga for policies. now it is 2000 crores fully subscribed by GOI AND RBI. • H.

• • • • • Funds created by NABARD -rural infrastructural deve fund 28749 crores -R&d fund -Soft loan assistance fund -Credit and financial services fund .

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receiving deposits of money.Banks A bank is a commercial or state institution that provides financial services. lending money and processing transactions and the creating of credit . including issuing money in various forms.

• In addition to giving short-term loans.Commercial bank • Commercial Banks are banking institutions that accept deposits and grant short-term loans and Advances to their customers. commercial banks also give Medium-term and long-term loan to business enterprises. There are also many Other functions of commercial banks . • Now-a-days some of the commercial Banks are also providing housing loan on a long-term basis to individuals.

. and (B) Secondary functions. and b) Granting loans and advances. (A) Primary functions The primary functions of a commercial bank include a) Accepting deposits.• The Banking products/function of commercial banks are of two types. (A) Primary functions.

demand draft. Providing customers with facilities of foreign exchange dealings. important document and securities by providing safe deposit vaults or lockers. Issuing letters of credit. travelers cheque. b. . Undertaking safe custody of valuables. c. and from one branch to another branch of the bank through cheque. d.Secondary functions a. Transferring money from one account to another. etc. pay order.

Nationalized banks Name • Allahabad Bank • Andhra Bank • Bank of Baroda • Bank of India • Bank of Maharashtra • Canara Bank • Central Bank of India • Corporation Bank .Types of commercial bank • Public Sector Banks: These are banks where majority stake is held by the Government of India or Reserve Bank of India. Examples of public sector banks are: State Bank of India.

Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank State Bank of India State Bank of Mysore State Bank of Patiala State Bank of Travancore Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank .

Centurian Bank of Punjab (since merged with HDFC Bank) 3. HDFC Bank Ltd. Bank of Punjab Ltd. 8. 1. 7. 4.Private sectors Banks: In case of private sector banks majority of share capital of the Bank is held by private individuals. IndusInd Bank Ltd. Yes Bank Ltd. Development Credit Bank Ltd. 6. These banks are registered as companies with limited Liability. (since merged with Centurian Bank) 2. . Kotak Mahindra Bank Ltd. Axis Bank (earlier UTI Bank) 9. 5 ICICI Bank Ltd.

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