Chapter 22

The Labour Market

Value added = products or services have an increased value because work has been done on them, they have been
combined with other products and so on; this increase in value to the buyer is what the buyer pays for.
Wage rate = the amount of money paid to workers for their services over a period of time (that is, the price of labour).
Derived demand = demand that arises because there is demand for another good.
Labour Mobility = ease with which workers can move geographically and occupationally between different jobs.
Recruit: to find new people to work in a company, join an organisation, do a job.
Boom: time when business activity increases rapidly, so that the demand for goods increases, prices and wages go
up, and unemployment falls.
Boom and bust: when an economy regularly becomes more active sucessful and then suddenly falls.

The price for labour is the wage rate. Wage rate and the demand for labour are
inversely related. When wages rise, firms demand fewer workers and when
wages fall they demand more.

Factors affecting the demand for labour:

1. Demand For the Product
The demand for labour is derived from the demand for the goods and
services supplied by firms and public sector organisations (derived
demand).
2. Availability of Substitutes
The demand for labour may be affected by the cost and availability of
substitutes for labour. If firms believe that machines are more efficient and cheaper than people, they will substitute
people with machines.
3. Productivity of Labour
If every worker produces more output, demand for workers will increase because production becomes more profitable
(provided the extra output can be sold).
4. Other Employment Costs
The demand for labour may be affected by other costs linked to employing
labour. For example, national insurance contributions (NICs), the costs of
pensions, and company perks.

Changes in these factors will have an effect on the demand curve for labour.
For example, if there is an increase in the demand for air travel, there will be
an increase in demand for cabin crews. It will shift the demand for cabin
workers to the right.

The supply curve for labour (SL) wages and quantity of labour supplied are
proportionately related. If wages rates rise, more people will make themselves
available for work.

Factors affecting the supply of labour:

1. Population size
As the population grows, there will be more people available for work. Therefore,
the supply of labour will tend to increase over time.
2. Migration
Many countries welcome immigrants to help increase the working population.
3. Age Distribution of the Population
In most developed countries in the world there is an ageing population. This means that the dependency ratio is
rising. As the population ages, the dependency ratio may increase and this places a financial burden on the rest of
the population.
4. Retirement Age
In many countries, once people reach a certain age they are entitled to a state pension. This is called the retirement
age. If the retirement age increases people will have to work for longer before they are entitled to any state benefit.
Therefore the supply of labour will increase.
5. School Leaving Age
In most countries, children must attend school until they reach a certain age. This is called the school leaving age.
Once the age is reached, children are allowed to work. Any changes to the school leaving age can affect the supply
of labour.
6. Female Participation
An increasing number of women have worked due to changes in society and equality legislation to work and pursue
careers. This has increased the size of the working population.
7. Skills and Qualification
The supply of labour will tend to increase if people become more employable (if people have good skills and are well
qualified).
8. Labour Mobility
As workers become increasingly mobile (geographically or occupationally), the supply of labour in a market can be
boosted. Improvements in the transport networks have improved the geographical mobility of labour.

Changes in these factors will have an effect on the

supply curve for labour. If there is an increase in
immigration, there will be an increase in the supply
of labour. This will shift the supply curve for labour
to the right.

The equilibrium wage (wage rate) is determined

where the supply and demand for labour is equal.
The equilibrium wage is $800 per week and at this wage rate both the supply of
labour and demand for labour is 80 workers, equal.
The importance of the quantity and quality of labour to business:
When a business is considering locations for its operations, it is not just the cost of labour that is important, it is also
the quantity and quality. Setting up a business where labour is cheap will most likely result in unskilled and often
poorly educated/skilled workers. Businesses cannot afford the consequences of poor-quality work. Business setting
up in a poor skilled labour location may have to invest substantial sums of money in training unless all the work on
offer is unskilled. Also, when choosing a location, businesses have to ensure that there are enough workers near the
site chosen. They will have to consider whether there would be enough workers in the future if the operations needed
to expand. Businesses need access to sufficient number of skilled workers in order to minimise costs, operate
efficiently and make more profit.

Impact of education and training on the quality of human capital:

The quality of human capital and the quality of labour can be improved through education and training. Generally,
employers will want to recruit people who can read and write and have good communication skills. They will also
want to recruit people with specialist skills. If the labour supply is well educated and trained it will be more productive.
Over time, a country will want to improve the quality of labour so that it is more productive. This will require
investment by the state and firms in training and education.The main reason for training is to provide workers with the
skills and knowledge needed to do their jobs effectively. As a result, their productivity will increase. However, there
are more reasons. For example, Workers will need training if there are changes that might affect their jobs like, new
health and safety procedures, new technology, or new working practices. Some businesses train their workers in a
range of different jobs so they are multi-skilled. This provides the business flexibility and for workers to feel secure to
have been trained to do their job effectively (Motivation).

Chapter 23
The Impact of changes in the supply and demand for labour and trade union activity in labour markets.
Trade unions: organisations representing people working in a particular industry or profession that protects their
rights.
Disputes: serious disagreement between two groups of people, especially a disagreement between workers and their
employers in which the workers take action to protest.
Secret ballot: way of voting in which people write their choices on a piece of paper in secret.
Closed shop: company or factory where all the workers must belong to a particular trade union.
Secondary picketing: workers in one workplace or company strike in a group at a particular location in order to
support the striking workers in a different workplace or company.
Inflation: rate at which prices rise, a general and continuing rise in prices.

Changes in demand for labour:

Since the demand for labour is derived demand , if there is a fall in the demand for a particular product, there will be a
fall in demand for workers involved in the production and selling of the product. In
some countries, the demand for
Certain types of labour have been growing
in recent years. In China, the demand for
factory workers in manufacturing has
increased. Manufacturing output in China
rose for many years to meet the rising
demand for manufactured exports. This
increase in the demand for factory workers
is shown by a shift in the demand curve for labour to the right. The rising demand for
factory workers in China has caused wages to increase.
Changes in the supply of labour:
If there are more people on the globe, there are more people available for
work. In some countries the governments have raised the retirement age.
Raising the retirement age will increase the supply of labour.This happened in
Greece and it caused wage rates to fall and the number of people employed to
rise. It could be said that there is little evidence to suggest that wages have
fallen over the years as both the global population and the supply of labour
have grown.

Trade unions are organisations that exist to protect the interests of workers. The main aims of trade unions are to:
- Negotiate pay and working conditions with employers.
- Provide legal protection for members, such as representation in court if an employee is fighting a case
against an employer (discrimination in the workplace).
- Put pressure on the government to pass legislation that improves the rights of workers.
- Provide financial benefits, such as strike pay whenever necessary.

Many trade unions in the UK were involved in disputes with employers. As a result, the government passed
legislation to limit the power of trade unions. For example, new laws:
- Required trade unions to have a secret ballot before a strike; a
strike could only go ahead if the majority of members voted in
favour.
- Allowed businesses to sue for compensation if trade unions did
not obey the law.
- Banned secondary picketing.
- Made closed shops illegal.
As a result of this anti-trade union legislation, trade unions became weaker
and less popular in the UK.

A strong trade union may be able to force wages up in some labour markets. If a union
has the full support of its members, it can put pressure on employers during wage
negotiations. When this happens unions are able to affect wages and employment
levels. One of the effects of trade union interference is that higher wages result in fewer
workers being employed. This is because the demand for labour falls when wages
increase. It could be argued that trade union interference has increased wages at the expense of jobs for some of its
members. However, job losses might be avoided:
- If labour productivity rises at the same time.
- If employers are able to pass on wage increases to customers in the form of price rises.
- If profit margins are reduced (which means that employers meet the cost of the wage increase).