Labour MarketsYear 10 IGCSE

What factors affect an individuals supply of labour?• An individuals supply of labour refer to the number of hours an individual is willing to work at a given wage rate.

• It is determined by wages and non-wage factors.

Wag

e ra

te

Number of hours

SIncome effect- As the wage rate rises, the number of hours worked decreases. More goods and services are consumed incl. leisure

Substitution effect- As the wage rate rises the number of hours worked increases. A higher wage rate increases the return from working and increases the opportunity cost of leisure

Individual Supply of Labour

Supply of labour to an industryThis refers to the total number of people who are willing and able to work in a given industry at a given wage rate.

Supply of labour

Wage

Rate

Employment

W1

W2

N2 N1

SL

What factors affect the supply of labour?

1. Wages relative to those in other industries: higher wages should boost the number of people willing and able to work.

2. Non- wage factors eg. Fringe benefits, Job Satisfaction, Danger associated with the job, Status

3. The working population (the number of people of working age willing and able to work)

4. Education Levels – fewer people will be able to offer themselves for work the higher the level of education, the longer the training period and the more expensive the course is

• Substitute occupations: for example an increase the wage rate for plumbers may entice people to switch their jobs.

• Barriers to entry: to become a doctor there is strict entry criteria.

• Improvements in occupational mobility of labour: if people are trained with necessary skills then they will supply their labour to that particular industry

The demand for labour

The demand for labour is a derived demand, which means that the quantity of labour demanded is derived from the demand for the product that the labour produces.

Demand for Labour

Wage

Rate

Employment

W2

W1

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What affects the demand for labour? The Wage Rate – Movement along the curve Consumer demand for the goods/ services that the labour creates

Productivity of workers Price & Productivity of Capital (if capital becomes cheaper then firms may replace labour with capital- automation)

Other costs of employment (eg. Govt regulation regarding health and safety)

The Labour Market Wages are the ‘price’ of labour and like other prices they are determined by demand and supply operating in the labour market

In the labour market firms are the buyers, they demand labour households are the sellers, they supply labour

The market equilibrium

• In any occupation, the wage paid to the workers (and the level of employment) will depend on the equilibrium point in the labour market for that occupation.

The market for labourWage

Rate

Employment

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Quick Quiz 10 minsIllustrate and explain what will happen to wageswages and

employmentemployment if:1. Demand decreases (3 marks)2. Wage is above the equilibrium wage? (3 marks)3. List 3 reasons why the demand for labour may increase (3

marks)4. List 3 reasons why the supply of labour may increase (3

marks)

Elasticity and Labour markets

Elasticity

The elasticity of demand and supply affects how shifts in demand and supply will change equilibrium wages and level of employment eg. if supply of labour is inelastic, a change in the wage rate will cause a proportionately smaller change in quantity employed

Elasticity of Supply of Labour

• What might make the supply of labour more inelastic?• If it takes a long time to train (eg. Doctor)• If specialist skills are required• Unattractive industry/ job

Percentage Change in Supply of Labour

Percentage Change in Wage Rate

Illustrate… If there is inelastic supply of labour and an increase (shift) in the demand for labour

What happens to equilibrium wage and employment?

Is the increase in wages greater than the increase in employment?

If supply of labour is more elastic and there is an increase in demand for labour

What happens to equilibrium wage and employment?

Is the change in wages and employment different to your previous diagram?

Conclusion• If supply of labour is more inelastic, then an increase in demand will bring about a proportionately larger increase in wages than employment

• -A higher wage needs to be paid to attract people to the industry

Elasticity of Demand for Labour• What would make the demand for labour inelastic?

Substitutes and Time

The easier it is to substitute the factors of production, the more elastic the demand for labour will beEg. It might be easy to replace a factory worker with a machine, whilst it might be more difficult to replace a cleaner with a machine, therefore demand for factory workers may be more elastic than demand for cleaners

It is sometimes difficult to replace certain types of labour with machines and the time it takes to substitute capital for labour can be very lengthy

The PED for the product the labour is producing

If demand for a product is very price inelastic, it might be possible for a producer to pass on an increase in wages to the consumer in the form of higher pricesIf this is the case, the demand for the labour that makes the product will be wage inelastic

The proportion of labour cost to total cost

• In a very labour intensive industry like health or education where labour costs make up the majority of total costs, it is very difficult to raise wages significantly without large-scale redundancies. This makes the demand for labour very wage elastic

Task p66 Study Points

Average Pay1. Head of major organisation £114,549Chief executives; directors; general managers; managing directors

2. Medical practitioner £82,962 Anaesthetists; hospital service consultants; doctors; general practitioners; physicians; psychiatrists; psychoanalysts; registrars; surgeons

3. Senior national government official £78,182 Assistant secretaries; diplomats; MEPs; MPs.

4. Aircraft pilot £74,4425. Dental practitioner £60,0986. Finance manager/chartered secretary £59,3017. Senior police officer £58,7468. Air traffic controller £56,8009. Mining/energy manager £53,74110. Business/financial broker £52,902. Note: Stockbrokers are more likely to be reckless and manipulative than diagnosed psychopaths

Why do wages differ?1. Lack of information about jobs and

wages2. Immobility- labour force mobility3. Demand for/price of (final) product4. Productivity of workers5. ‘Compensating’ wage differentials eg.

Working hours may be unsociable therefore wages are higher

6. Government Pay Policy7. Trade Union strength8. Differences in regional living costs9. Employer discrimination10.Elasticity of demand and supply

Differences in pay• Gender• Industry- agriculture/ manufacturing/ service

• Skilled/ unskilled• Public and Private sector• International

Differences in the occupational distribution of men and womenDifferences in the occupational distribution of men and women. Eg. More women in teaching, nursing & retailing than men- these occupations tend to have low wages

Women often take career breaks career breaks to raise children, thus have less experience and less career progression

More women work part- time part- time than full time compared to men

How can the government influence labour markets?• Legislation eg. H &S, minimum wage, equal pay act, discrimination laws

• Education and training policies• School leaving age• Retirement age• Gov is a employers for many industries eg. Education and health

Minimum Wage• A pay ‘floor’ which sets a minimum level of wages that employers have to pay (by law)

• Introduced in the UK in 1999

Case For1. reduction in poverty2. reduction in income inequality3. higher tax revenues4. lower benefit payments5. increases incentives to work

Case Against1. Creates unemployment2. Firm may be less likely to employ

young/unskilled workers3. Firms may reduce investment in

training4. Does not affect those not in work

(dependent on benefits)5. May add to inflation, especially

as other workers demand higher pay increases (to maintain differentials)

6. Does not take account of regional differences in cost of living.

Wage

Rate

Employment

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WmWm

Dm Sm

At Wm (minimum wage) demand for labour is Dm and supply of labour is Sm.

There is therefore excess supply of labour (i.e. unemployment)

Exam question due next lesson• 3 Sometimes there is not enough skilled labour for a particular occupation.• (a) Why might companies spend money on training to increase the skills of their workforce? [4]• (b) Apart from lack of skills, explain three other reasons that might prevent a person moving from• one job to another. [6]• (c) Discuss how a government might influence the demand for and the supply of labour. [6]

Trade Unions• A trade Union is a group of workers who join together to promote and protect the interests of their members.

• The union tries to influence some of the decisions made by businesses and their owners.

• Unions elect a leader who will negotiate with employers on their behalf.

Trade UnionArticle• Levis, Gap Garment Workers in Cambodian Strike

Trade UnionQuestions• What improvements to working conditions might the workers be demanding?

• Using a diagram show the likely effects of the increase in salary if it was granted to the TU members.

• What effect will the ‘strike’ have on the firm?

Trade Unions Aims

Industrial Action• There are many types of action that a union can take to get their demands met. These include:• A Strike – where workers refuse to work and will often protest, or picket, outside their place of work.

• Overtime Ban – where workers refuse to work more than their normal hours.

• Work-to-Rule – where workers comply with every rule and regulation and this often slows down production.

Industrial Action• A Sit-In - when workers refuse to leave their place of work, often in an attempt to stop a firm installing new machinery or closing down.

• Go- Slow – when workers work deliberately slowly.

Industrial Action• All of the above either reduce output and/or increase the costs of production for firms and result in lower profitability and therefore make the firm more willing to comply with the workers demands.

Reducing Trade Union Power• What disadvantages might unions bring to an economy?