http www bized co uk The Labour Market

http: //www. bized. co. uk The Labour Market • The market for a factor of production - labour • Refers to the demand for labour – by employers and the supply of labour (provided by potential employees) • Demand for labour is a derived demand - not wanted for its own sake but for what it can contribute to production The demand for labour is dependent on the demand for the final product that labour produces. The greater the demand for office space the higher the demand for construction workers. Copyright: Bo de Visser, stock. xchng Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market • Demand for Labour • Influenced by: – Cost of hiring labour – Wages/salaries – National Insurance contributions – Pension contributions – Administration costs associated with tax payments and adhering to employment laws and regulations Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market • Demand closely linked with the value of the product produced by labour – e. g. 1 person produces 50 mugs per week, each mug sells for £ 2 each. Total value of output = £ 100 – To be profitable the wage rate must not therefore exceed £ 100 per week • Marginal Revenue Product – the addition to total revenue from the sale of one additional unit of output produced by the worker MRP = MPP x P • MPP = Marginal Physical Product – the addition to total output produced by employing one extra or one fewer unit of labour Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market The demand for labour will shift a relatively high wage The demand for labour if: At At a lower wage rate the rate of £ 250 per week, is downward sloping • Productivity of labour increases firm can afford to by take the value added theon from left to right more workers. The demand worker must is be greater • New machinery used which for labour is inversely to cover the cost of increases productivity related to the wage rate hiring that labour. • If there is an increase Demand is likely to in bethe demand for the good/service lower. itself Wage Rate (£ per week) £ 250 • If the price of the good/service increases £ 100 DL 1 DL Q 1 Q 3 Q 2 Q 4 Quantity of labour employed Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market • Productivity: • A measure of

http: //www. bized. co. uk The Labour Market • Productivity – Not always easy to measure – Influences costs – output = potential revenue counterbalanced by wage costs – Indicates efficiency – Competitive advantage Measuring productivity in service industries, especially the public sector can be difficult. How would you measure the productivity of a teacher? Copyright: Jeramey Jannene, stock. xchng Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market • Supply of Labour determined by: – Size and structure of the population – age, gender, etc. – Skill levels required – Education and training • Number in higher education • School leaving age • Qualification types – Fashion – Time period – Opportunity cost of work – income and substitution effects Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market SL Wage Rate (£ per hour) In the. Sshort run, the. L 1 supply of internet developers is very inelastic 75 50 30 DL Q 1 Q 3 Shortage Q 2 In the long run, as The shortage causes The As businesses demand the wage rate tofor be the more people train Assume this is developers recognise the at a forced up tofor £ 75 per and qualify to market hour as rate firms compete wage potential benefits of £ 30 become internet Internet for the skillsisof those per of having hour a now Web Q 2 developers, the developers –short the available. In the but site, there demand are rate still for supply will wage runinitial there is increase not the is only their Q 1 skills available and also become £ 30 hour time forper new workers for increases employment. from more elastic. The DA to come onto the shortage to D 1 develops. market because of the wage rate will fall training time needed. back to a lower level. DL 1 Number Employed Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market • The relative demand supply of labour can help to explain differences in wage rates for different occupations – e. g. Supply of those able to train as nurses higher than those with the talent to be successful professional footballers, hence the higher wage rate of footballers! Nurses help care for people and save lives, footballers entertain. One earns £ 90, 000 per week, the other £ 350. Copyright 2006 – Biz/ed

http: //www. bized. co. uk The Labour Market • Other factors influencing wage differentials: – – – Status attached to the job Discrimination Race Gender Monopsony – a dominant buyer in the market Sector – public or private Trade Union power or influence Length of career Risk or danger involved Social or unsocial hours Shift patterns Productivity Some jobs might attract a premium because of the danger or risk associated with carrying it out! Copyright: Dria Peterson, stock. xchng Copyright 2006 – Biz/ed