topic 4: labour markets

• Labour market


  The market for labour resources
• Demand for labour factors

  • Economic activity
  • Productivity of labour
  • Cost of other inputs
• Derived demand


  Demand for labour is derived from the demand for goods and services produced
• Economic activity level


  Determines demand for labour
• Unemployment and economic growth

  Inverse relationship
• As consumer spending increases, more labour is needed for the production of output
• Productivity of labour


  Output per unit of labour employed over time
• Labour productivity formula


  LABOUR PRODUCTIVITY = TOTAL OUTPUT / LABOUR INPUT
• Quality of labour


  Influences productivity outcomes for the firm
• Increased aggregate demand (AD) productivity increases demand for productive workers
• Decreased total productivity decreases demand for workers
• Labour choices


  Firms may choose capital over labour due to oncosts
• Supply of labour


  Individuals’ readiness and willingness to work in the labour market
• The labour curve is upward sloping
• As wage rises


  More people will supply their labour
• As wage falls


  Less labour will be supplied
• Working conditions


  Improved conditions attract more labour
• Human capital


  Skills, experience, education/training levels influence labour supply
• Geographic mobility of labour

  Ability of workers to move for job opportunities
• Occupational mobility of labour

  Ease of moving between occupations for better wages
• Higher rates of labour mobility increase the elasticity of the supply of labour
• Lower rates of labour mobility reduce the elasticity of supply of labour
• Participation rate


  Proportion of working age population in the workforce
• A high participation rate increases the supply of labour
• The participation rate rises when economic growth increases
• Workforce definition


  Section of the population aged 15 and above who are working or actively seeking work
• Included in the workforce

  • Aged 15-65
  • Employed at least 1 hour a week
  • Unemployed actively seeking work
• Not included in the workforce

  • Aged under 15
  • Retired
  • Performing full-time domestic duties
  • Full-time non-working students not seeking work
• The proportion of the population in the 15-65 age group is beginning to decline
• Net migration accounts for 40% of population growth since WWII
• Natural increase has declined since 2020
• Australians spend more years in education than previous generations
• Public spending on education is slightly above OECD averages
• The workforce is defined as those aged 15+ working one hour per week or more, or actively seeking work
• The participation rate is the proportion that the labour force represents of the total population over 15 years
• General characteristics of the Australian workforce

  • Total Employment: 14,355,100
  • Participation Rate: 66.7%
  • Part-Time Employment: 29.9%
  • Unemployment Rate: 4.0%
  • Youth Unemployment Rate: 7.8%
  • Underemployment Rate: 6.7%
• Wage outcomes are the money that individuals get from their job
• Nominal wage


  Pay received in dollars
• Real wage


  Pay adjusted for inflation
• Reasons for gender pay gap

  • Sex discrimination
  • Career disruptions
  • Women in lower-paying industries