Summary of Supply and Demand of Labour

Essay by jarrod123 August 2009

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The Demand and Supply of LabourTopic 4 Labour Markets Economics•Labour is the human element of the production process•Labour market is a factor market where the supply and demand of labour interact to determine wage rate and allocation of labour resources in an industry•Wages = income of employees/price of labour/cost to employers using labour•Outcomes of labour market important considerations in the achievement of govts macro objectives of price stability and full employment•Wage growth will affect aggregate demand and demand inflation•In competitive market, interaction of demand and supply of labour determine wage rates and allocation of labour resources•Govts intervene in labour markets to make minimum wage level (award rate), resolve industrial disputes, set min conditions, leave provisions, superannuation etc.

•Aim of macroeconomic policy is secure full employment and price stability•Govt also intervenes on microeconomic scale to make labour market as efficient as possibleDEMAND for Labour•Demand for labour derived from demand for the final goods that that labour is used to produce eg a productive labour group will produce many widgets which are very productive and make large profits and business employs more labour for greater profits•Also derived from level of economic activity, productivity of labour, relative cost of labour against capital•Microeconomic factors influencing the demand for labouroNature and size of an industry e.g.

capital intensive industry demands less labouroPattern of consumer demand and output e.g. a decline in the demand for steel means less steel workersoWage rate and conditions of employment offered eg more profitable industries with higher prospects for growth will be more able to attract more labour by offering higher wage rates and fringe benefits to employeesoProductivity of labour eg rising levels of productivity will lead to an increased demand for labour. This will lead to higher profits by the firm and a rise in employmentoRate of capital/labour substitution eg...