labour market

• The labour market operates in the same way as any other market with the price, in this case wages being determined by the interaction of demand and supply. Demand in this case however is a little different to that of other products that we have looked at thus far because the demand is a derived demand.

  Don't demand a coal miner or fireman- instead demand the good or service they produce.
• Factors affecting demand for labour 


  • The demand for labour is strongly linked to the demand for the product that the labour actually produces. As the market for coal has fallen so has the demand for coal miners.
  • The demand for labour will also be related to the wage rate
  • The demand for labour will also be affected by the state of the economy and the expectations for the future
  • The price of other factors of production
  • The price of other workers around the world
  • New technology and increased efficiency
  • Regulation
• The demand for labour will also be related to the wage rates 


  as wages fall so demand will increase as it becomes more worthwhile employing the labour

  
• The demand for labour will also be affected by the state of the economy and the expectations for the future

  In the times of recession, demand for labour may fall as firms are more worried for future- less likely to engage labour. Time of boom -need more labour.
• The price of other factors of production 


  Any change in price of capita, land could result in a switch in production- may increase/decrease demand
• The price of other workers around the world 


  if labour - much cheaper other parts of world- firms more production of goods here => means fall in demand for labour here
• New technology and increased efficiency 


  an improvement in the speed, lost or efficiency of machinery. Could see machinery taking the place of workers
• Regulation


  changes in regulation could result in changes in demand for labour. The change in regulation, so that buses did not need conduction, meant a loss of jobs
• The price elasticity of demand for labour is also obviously linked to the PED of the product itself. But will also be determined by:


  • time
  • availability of substitutes
  • proportion of wages to the cost of production
• The supply of labour depends again on a number of factors such as:


  • size of population + age distribution (% of working age)
  • qualifications, training, skills
  • migration
  • welfare benefits (rather stay home + claim benefits than go to work)
  • income tax (lose pay to ta, would rather not be working) / NIC (national insurance contribution)
  • legislation
  • trade unions
• The labour market should operate in the same way as any other with the wage rate allocating labour where the wage increases we would expect labour to be attracted. When the wage rate falls we expect labour to leave that market. The problem is that most labour markets are not perfectly free markets.
• Labour can suffer from Immobility.

  This can be:

  • geographical mobility
  • occupational mobility
• Trade unions can attempt to restrict the supply of labour
• Introduction of the need for teachers to have a degree. Limits on the number of people who can train as vets
• National minimum wage now the National Living Wage (NLW) for those over 21:


  • 21+ (NLW) = £12.21
  • 18-20. = £10.00
  • 16-17. = £7.55
  • apprentice = £7.55

  Real national living wage (how much it costs to live) = £12.60

  in london = £13.85
• National minimum wage advantages 


  • alleviate poverty
  • reduce male/ female wage differentials
  • lower labour turnover- lower recruitment and training costs
  • more motivated/ content workforce
  • incentive to work (prevents unemployment trap)
  • improves economic growth
• National minimum wage disadvantages 


  • loss of jobs
  • wage spiral
  • affect international competitiveness of the UK
  • different areas have different living costs
  • large government cost, adversely affect government
  • people affected are secondary earners (not poor)
• NLW

  graph

  
• alleviate poverty (nmw)


  wage rise to those who earn the least, allows them to afford to buy more essentials of life and in turn lift them out of poverty
• reduce male/ female wage differentials (nmw)


  historically, more women are employed in sectors with lower rates of pay

  raising nmw, will affect women more
• lower labour turnover, leading to lower recruitment and training costs 


  if wages improve, people would be more willing to stay in that job, and not leave for an alternative better paid one
• more content workforce 


  better pay makes people feel more valued and content, so would be more motivated
• incentive to work- prevents 'unemployment trap'


  higher pay may make working more financially attractive, instead of being on benefits. then can improve economy and government finances.
• unemployment trap 


  taking a low paid job and the resultant loss in benefits may make a person little or no better off than living on benefits. as a result purple decide to stay to benefits and not work
• improves economic growth


  lower paid, get an increased income - will spend it. this increased spending will mean thatt other people will also have more money as they are being paid to produce additional products that these people are now demanding. overall, increase in demand for goods and services in economy- economic growth
• NLW - potential loss of jobs
• loss of jobs 


  businesses decide it is not worthwhile employing so many people, if they have to pay them higher wages
• wage spiral as individuals try to protect wage differentials 


  • lower paid get a raise, then those people who manage them or are higher than them, should get a rise as well
  • eg if a= 4 b= 8, when a = 6, b should be 12 otherwise pay differential will be eroded
• wage differentials 


  the difference in wages between workers with different skills in the same industry or between workers with comparable skills in different industries or localities
• cost of living is different for different areas


  amount of money needed to survive would differ from cornwall to london- which is why the voluntary london living wage was introduced (£13.85)
• adversely affect government 


  those in low paid jobs are generally employed by government- meaning government would be forced to see an increase in open wage bill, which would worsen public figures
• secondary earners 


  many low paid jobs, are worked by those who are students or trophy wifes/husbands working around commitments so are generally more well off. meaning it is not the poor who are being effected by the wage increase, the aim to alleviate poverty is not targeted