INTRODUCTION TO LABOUR MARKET ECONOMICS

1 LABOUR MARKET ECONOMICS INTRODUCTION TO LABOUR MARKET ECONOMICS The LABOUR MARKET The MARKET for a factor of production - LABOUR (measure of work done by human beings) Explains the functioning and dynamics of the MARKET for LABOUR the pattern of wages, employment and income. Refers to the demandfor LABOUR by employers and the supplyof 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 productionThe 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 LABOUR MARKET : Key Role Players Individuals Decisions Individuals to enter the labourmarket much education /training of job search industry rate The LABOUR MARKET : Key Role Players Firms Decisions Organizations or firms number of workers and policies The LABOUR MARKET : Key Role Players Factors Influencing Firms Decisions Global competition: Free trade, industrial restructuring, Deregulation, Privatization.

2 Legislative environment: Human rights, minimum wage, overtime, maternity leave, workers compensation, occupational health and safety, pensions, LABOUR laws, collective bargaining. Changing workforce: Age , gender, ethnic diversity The LABOUR MARKET : Key Role Players Governments Decisions Individual rights versus employee competitiveness Public support Training and education Insurance Compensation Pensions Skills development Characteristics of the LABOUR LABOUR , management, and government (each with different Family and community ties, role of women, and social norms - unions and multinational constraints minimum wage laws, health and safety regulations, employment insurance, imperfection MARKET uncertainties and risk wage rate implications ROI on education, training and mobility, union power, productivity , standard of living The LABOUR MARKET : Demand for LABOUR Influenced by.)

3 Cost of hiring LABOUR Wages/salaries National Insurance contributions Pension contributions Administration costs associated with tax payments and adhering to employment laws and regulationsThe LABOUR MARKET Demand closely linked with the value of the product produced by LABOUR 1 person produces 50 mugs per week, each mug sells for R2 each. Total value of output = R100 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 workerMRP = MPP x P MPP = Marginal Physical Product the addition to total output produced by employing one extra or one fewer unit of labourThe LABOUR MarketWage Rate (r per week)Quantity of LABOUR employedDLThe demand for LABOUR is downward sloping from left to rightR250Q1At a relatively high wage rate of 250 per week, the value added by the worker must be greater to cover the cost of hiring that LABOUR .

4 Demand is likely to be l o w e a lower wage rate the firm can afford to take on more workers. The demand for LABOUR is inversely related to the wage rateDL1Q3Q4 The demand for LABOUR will shift if: productivity of LABOUR increases New machinery is used which increases productivity If there is an increase in the demand for the good/service itself If the price of the good/service increasesThe LABOUR MARKET productivity : A measure of output per person per time periodTotal OutputProductivity = --------------------Quantity of FactorThe LABOUR MARKET productivity Not always easy to measure Influences costs output = potential revenue counterbalanced by wage costs Indicates efficiency Competitive advantageMeasuring productivity in service industries, especially the public sector can be difficult. How would you measure the productivity of a teacher?The LABOUR MARKET Supply of Labourdetermined by: Size and structure of the population age, gender, etc.

5 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 effectsThe LABOUR MarketWage Rate (R per hour)Number EmployedDLSL30Q1 Assume this is the MARKET for Internet developers the initial wage rate is 30 per hourDL1As businesses recognise the potential benefits of having a Web site, demand for their skills increases from D to D1Q2 ShortageThe demand for developers at a wage rate of 30 per hour is now Q2 but there are still only Q1 available for employment. A shortage the short run, the supply of internet developers is very inelastic75 The shortage causes the wage rate to be forced up to 75 per hour as firms compete for the skills of those available. In the short run there is not the time for new workers to come onto the MARKET because of the training time the long run, as more people train and qualify to become internet developers, the supply will increase and also become more elastic.

6 The wage rate will fall back to a lower LABOUR MARKET The relative demand and supply of LABOUR can help to explain differences in wage rates for different occupations 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 R90,000 per week, the other LABOUR MARKET Other factors influencing wage differentials: Status attached to the job Discrimination Race GenderMonopsony 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 ProductivitySome jobs might attract a premium because of the danger or risk associated with carrying it out!POLICY ISSUESL abour supply:Work incentive effects of income maintenance and tax transfer programs like employment demand: Effects of globalisation and outsourcing, trade policies, collective bargaining, legislation, human rights