The Labour Market
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http://www.bized.ac.uk
The Labour Market
Copyright 2006 – Biz/ed
http://www.bized.ac.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.ac.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.ac.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.ac.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 firm can afford to by take the value added theon from left to right increases more workers. The demand worker must be greater for labour is inversely to machinery cover the cost of which •New is used related to the wage hiring that labour. increases productivity rate Demand is likely to be •If there lower.is an increase in the demand for the good/service itself
Wage Rate (£ per week)
£250
•If the price of the good/service increases
£100
DL1 DL Q1
Q3
Q2
Q4
Quantity of labour employed
Copyright 2006 – Biz/ed
http://www.bized.ac.uk
The Labour Market • Productivity: • A measure of output per person per time period Total Output Productivity = -------------------Quantity of Factor
Copyright 2006 – Biz/ed
http://www.bized.ac.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.ac.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.ac.uk
The Labour Market SL
Wage Rate (£ per hour)
In the Sshort run, theL1supply of internet developers is very inelastic
75 50 30
DL Q1
Q3 Shortage
Q2
In the long run, as The shortage causes The As businesses demand the wage rate tofor bethe more people train Assume this is developers recognise the at aper forced up tofor £75 and qualify to market hour as rate firms compete wage potential benefits of £30 become internet Internet for the skills of those per of having hour isa now Web Q2 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 Q1 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 D1 develops. market because of the wage rate will fall training time needed. back to a lower level.
DL1 Number Employed
Copyright 2006 – Biz/ed
http://www.bized.ac.uk
The Labour Market • The relative demand and 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!
Title: Nurse Action.
Title: Roy Keane.
Copyright: Getty Images, available from Education Image Gallery
Copyright: Getty Images, available from Education Image Gallery
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.ac.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
The Labour Market
Copyright 2006 – Biz/ed
http://www.bized.ac.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.ac.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.ac.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.ac.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 firm can afford to by take the value added theon from left to right increases more workers. The demand worker must be greater for labour is inversely to machinery cover the cost of which •New is used related to the wage hiring that labour. increases productivity rate Demand is likely to be •If there lower.is an increase in the demand for the good/service itself
Wage Rate (£ per week)
£250
•If the price of the good/service increases
£100
DL1 DL Q1
Q3
Q2
Q4
Quantity of labour employed
Copyright 2006 – Biz/ed
http://www.bized.ac.uk
The Labour Market • Productivity: • A measure of output per person per time period Total Output Productivity = -------------------Quantity of Factor
Copyright 2006 – Biz/ed
http://www.bized.ac.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.ac.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.ac.uk
The Labour Market SL
Wage Rate (£ per hour)
In the Sshort run, theL1supply of internet developers is very inelastic
75 50 30
DL Q1
Q3 Shortage
Q2
In the long run, as The shortage causes The As businesses demand the wage rate tofor bethe more people train Assume this is developers recognise the at aper forced up tofor £75 and qualify to market hour as rate firms compete wage potential benefits of £30 become internet Internet for the skills of those per of having hour isa now Web Q2 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 Q1 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 D1 develops. market because of the wage rate will fall training time needed. back to a lower level.
DL1 Number Employed
Copyright 2006 – Biz/ed
http://www.bized.ac.uk
The Labour Market • The relative demand and 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!
Title: Nurse Action.
Title: Roy Keane.
Copyright: Getty Images, available from Education Image Gallery
Copyright: Getty Images, available from Education Image Gallery
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.ac.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
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