Topic 7: The Labour Market

7.1 Demand for Labour

• Derived demand → demand for labour depends on demand for goods/services.
• Influenced by: productivity, cost of capital vs labour, demand for output, technology.
• Higher wages → lower demand (movement along curve).
• Shifts caused by changes in productivity, technology, and demand for the product.

 

7.2 Supply of Labour

• Depends on: wage levels, working conditions, skills/training, mobility, population size.
• Backward‑bending supply curve: At very high wages, people may choose leisure over work.
• Shifts caused by migration, education, and social factors.

 

7.3 Wage Determination

• Competitive labour market: wages set by demand & supply → equilibrium wage.
• Monopsony (single employer): wages are lower, and employment is less than the competitive level.
• Trade unions: can push wages up, depending on bargaining power.
• Government policies: minimum wage, labour laws, anti-discrimination.

 

7.4 Factors Affecting Wage Differentials

• Skills, qualifications, experience.
• Industry profitability.
• Bargaining power (unions, professional bodies).
• Discrimination (gender, age, race).
• Geographical mobility.

 

7.5 Unemployment

• Types:
• Frictional: short-term, between jobs.
• Structural: mismatch of skills.
• Cyclical: due to economic downturn.
• Seasonal: linked to time of year.
• Costs: loss of income, lower output, social issues.
• Policies: training, subsidies, demand stimulation, labour market reforms.

 

7.6 Government Intervention in Labour Market

• Minimum wage → protects workers but may cause unemployment if set too high.
• Employment laws → regulate working hours, safety, equality.
• Education/training → improve human capital, reduce structural unemployment.