Chapter 15 Labour Edco 2012 Positive Economics Definition

Chapter 15 Labour © Edco 2012. Positive Economics

Definition of Labour is the human activity directed towards the production of wealth. Its payment is the wage rate. © Edco 2012. Positive Economics

Demand for Labour The demand for labour as a factor of production is a derived demand, i. e. labour is demanded for its contribution to the production process or from the demand for the goods it produces. The demand curve for labour is its MRP curve, which is downward sloping from left to right. Every worker is demanded up to and including the worker whose MRP and wage rate are equal. © Edco 2012. Positive Economics

Factors Affecting an Individual Firm’s Demand for Labour The MRP of the worker Wage rate The demand for a firm’s output Price of other factors of production Government incentives Availability of new technology Corporation tax Entrepreneurs’ expectations © Edco 2012. Positive Economics

Factors that Determine the Supply of Labour The supply of labour in the economy is the total number of hours worked in the economy during a specific period. It is determined by a number of factors, including: Size of population Wage levels in the economy Levels of income tax Number of hours worked © Edco 2012. Positive Economics

Factors that Determine the Supply of Labour (Continued) Labour mobility Government policies Participation rate, which is dependent on: – Social attitudes – Attitudes of homemakers – State of the economy – Welfare benefits © Edco 2012. Positive Economics

The Labour Supply Curve The equilibrium wage rate Horizontal supply curve of labour Restricting entry into a profession Trade unions and wage rates Wage drift Ratchet economy © Edco 2012. Positive Economics

Geographical Mobility Geographical mobility is the ability/ease of a worker to move from one area to another. © Edco 2012. Positive Economics

Factors that Inhibit Geographical Mobility Existing social connections in the area where a family lives The disruption that could be caused to children’s education The cost of selling and buying a house elsewhere A general fear or reluctance to consider a major change in one’s life © Edco 2012. Positive Economics

Economic Policies that Could Increase Geographical Mobility Increase housing Educational facilities Social infrastructure Supports by governments Updated information © Edco 2012. Positive Economics

Occupational Mobility Occupational mobility is the ease/ability of a worker to move from one job to another. © Edco 2012. Positive Economics

Factors That Inhibit Occupational Mobility Lack of transferable skills High costs associated with retraining Some professions present barriers to entry © Edco 2012. Positive Economics

Economic Policies that Could Increase Occupational Mobility Education courses Training Government policies Trade union barriers © Edco 2012. Positive Economics

What factors influence the elasticity of demand for labour? Percentage of labour costs to total cost Substitutability of labour Elasticity of demand for the finished good Productivity of labour © Edco 2012. Positive Economics

What factors affect the efficiency of labour? Amount of training Management expertise Level of education Innate talent Quality/quantity of other factors available Living conditions of the workforce Degree of specialisation Climatic conditions Dedication of the worker © Edco 2012. Positive Economics

How appropriate is MRP for setting wages in the public sector? Physical output is not always produced Non-market output Capital and labour used together © Edco 2012. Positive Economics

Why do different categories of workers receive different wages? Different skills Length of training Educational qualifications Nature and conditions of the job Possession of innate talent Tradition attached to certain jobs Non-monetary benefits Negotiating strength of the workers’ trade union © Edco 2012. Positive Economics

John Stuart Mill (1806 – 1873) Wage fund theory Increasing returns to scale Law of diminishing returns © Edco 2012. Positive Economics