WORKERS

Labour market

Laborers need wages to satisfy their wants and needs.

Payments for labour:

∙ Time-rate wage
∙ Piece-rate wage
∙ Salary
∙ Performance-related payments
∙ Commissions (is a form of performance-related pay.)
What affects an individual’s choice of occupation?

∙ Wage factors: the wage conditions of a job/firm will be considered by the individual before he chooses a job.
✔ Wages
✔ Bonuses
✔ Over time pay
✔ Commissions

∙ Non-wage factors: include:

✔ Hours and type of work
✔ holiday entitlements
✔ promotion prospects
✔ quality of working environment/ working conditions
✔ job security
✔ fringe benefits (free medical insurance, company car, price discounts on company products etc.)
✔ training opportunities
✔ job satisfaction
✔ career prospects
✔ size of the firm
✔ distance from home to workplace
✔ pension entitlement
 Wage determination

Labour demand is the number of workers

demanded by firms at a given wage rate.
Labour supply is the number of
Labour demand is called ‘derived demand’, since the
workers available and ready to work in
level of demand of a product determines that
an industry at a given wage rate. When
industry’s demand for labour. That is, the higher the
the wage rate increases, the supply of
demand for a product, the more labour producers
labour extends, and vice versa.
will demand to increase supply of the product.
RELATIVE BARGAINING POWER OF LABOUR AND TRADE UNION MAY MAKE SUPPLY
OF LABOUR INELASTIC. IT MAY INCREASE OR DECREASE D/S OF LABOUR TOO
Factors that cause a shift in the labour demand curve:
∙ Consumer demand for goods and services: the higher the demand for products, the higher the demand for labour.
∙ Productivity of labour: the more productive labour is, the more the demand for labour.
∙ Price and productivity of capital: capital is a substitute resource for labour. If the price of capital were to lower and its
productivity to rise, firms will demand more of capital and labour demand will fall (labour demand curve shifts to the
left).
∙ Non-wage employment costs: wages are not the only cost to a firm of employing workers. Sometimes, employment
tax, welfare insurance for each employee etc. will have to be paid by the firm. If these costs increase, firms will demand
less labour.

Factors that cause a shift in the labour supply curve:

∙ Advantages of an occupation: the different advantages a job can offer to employees will affect the supply of labour-
the people willing to do that job. Example: if the number of working hours in the airline industry increases, the labour
supply there will shift to the left.
∙ Availability and quality of education and training: if quality training and education for a particular job, say pilots, is
lacking, then the labour supply for it will be low. When new education and training institutes open, the labour supply
will rise (labour supply curve shifts to the right).
∙ Demographic changes: the size and age structure of the population in an economy can affect the labour supply. The
labour supply curve will shift to the right when more people come into a country from outside (immigration) and when
the birth rate increases (more young people will be available for work).

Relative bargaining power

 Government policies
✔ Government intervenes to:
○ protect rights of employers and employees
○ raise wages of lowest paid workers
○ reduce unemployment
○ outlaw discrimination
✔ One of the best-known labour market policies is a national minimum wage (NMW). This is the wage set by the govt.
above the market wage below which no worker can be legally paid.

Advantage
● High incomes for low paid
● Beneficial inflation
● Motivates and increases
Productivity
Disadvantage
● Causes unemployment
● Discourages further
education
● Hurts small businesses
● Increases inefficiencies
 Wage differentials
Important wage differentials:
∙ Primary/ Secondary/ tertiary sector workers
∙ Skilled and unskilled workers
∙ Male vs Female workers
∙ Public-private sector pay gap
Why do wages differ between people doing the
same job?
∙ Regional differences in labour demand and supply
∙ Fringe benefits differ
∙ Discrimination
∙ Length of service
∙ Unionized vs non-unionized workers
∙ Cost of living differs
∙ Private vs Public sector