Preliminary Exam Topic 4 Flashcards
Define the ‘LABOUR MARKET’
A labour market is where individuals seeking employment interact with employers who want to obtain the most appropriate labour skills for their production process.
Who DEMANDS labour?
FIRMS
What is the relationship between the demand of goods and services and the demand of labour?
Labour is a derived demand, meaning that the demand for labour arises from the production of another good or service. Thus, labour demand is dependant on the demand of G&S.
Is demand for G&S increases the demand for labour will also increase because more labour will be required in order to ensure efficiency in the production process and higher output.
Vice Versa
How does a labour demand graph differ from a regular demand graph
Line is the same
- Y axis = wage rate
- X axis = Employment
As the price of labour (wages) falls, an individual firm will employ more labour.
- Same as law of demand
What are the 3 factors affecting the demand of labour?
- Output of the firm
- Productivity of labour
- Cost of other inputs
How does the OUTPUT OF THE FIRM affect demand for labour?
Three components of this:
Labour is a derived demand so the most significant influence on a firm’s demand for labour is its level of output. If a firm is experiencing higher sales, it will increase production and therefore increase demand for labour.
- General Economic conditions (aggregate demand)
The demand for labour will reflect fluctuations in the business cycle and only a few firms will benefit during the economic downturn. - Conditions in the firm’s industry:
changes in consumer demand will affect the demand for labour - changing consumer preferences for G&S will change the allocation of labour to different industries. - The demand for an individual firm’s products
A firm’s output is determined by its effectiveness in selling its G&S in the marketplace
- quality of brand
- Customer loyalty
- Marketing
Define ‘AGGREGATE DEMAND’
Total demand for goods and services within an economy.
Components of aggregate demand are:
Consumption (C)
Investment (I)
Government spending (G)
Net exports (X–M).
How does the ‘PRODUCTIVITY OF LABOUR’ affect labour demand
A firm must choose how to organise production.
- i.e choosing between labour-intensive production or a larger reliance on technology and automated systems.
Labour productivity depends on the quality of the workforce (overall level of education, skill, health and motivation). However it is possible to be more productive without increasing labour productivity through investment in capital.
An increase in productivity + steady aggregate demand = demand for labour will decline
Aggregate demand rises faster than increase in productivity = higher demand for labour
If aggregate demand is falling, but labour productivity is rising, demand for labour will fall even more.
New technologies improve the efficiency of capital investment and create cheaper alternative production methods - allowing firms to reduce their demand for labour with equal output levels.
Define ‘PRODUCTIVITY OF LABOUR’
the output per unit of labour per unit of time
How does the ‘COST OF OTHER INPUTS’ affect demand for labour?
Firms can combine the different inputs in the production process - there are a range of options for how it combines labour and capital.
CAPITAL IS A SUBSTITUTE FOR LABOUR
If introducing new technologies can produce overall cost reductions, then firms will use more capital (technology) inputs in the production process, and less labour. Vice Versa.
Labour cost is not wage costs - includes benefits too
The demand curve for labour reflects the fact that businesses will employ more labour when the cost of labour declines and less labour when the cost of labour increases.
The cost of capital is represented by a number of factors - The most important is the interest rate, as it represents the cost of borrowing funds to purchase new capital equipment.
he interest rate is an opportunity cost if the firm is using its own funds to finance capital – it could be earning returns on its funds rather than investing them back into its own business.
A firm might also shift some of its operations overseas where there are lower labour costs.
Is the labour supply curve direction the same as a regular supply curve?
The labour supply curve is upward sloping as the higher the wage, the more willing individuals are to work
Individuals make up the supply of labour while firms make up the demand for labour.
List the factors affecting SUPPLY
Pay and remuneration
Working conditions
Human capital
Skills
Experience
Education/training levels
Occupational + geographic mobility of labour
Participation rate
How does pay/renumeration affect SUPPLY
The higher the wage/salary offered, the more people will be prepared to supply their labour.
Other non-wage/salary incentives may be included in an employee’s remuneration package - e.g the use of a company car + extra superannuation benefits. Can incentivise work.
Define ‘REMUNERATION’
The compensation or payment received by an employee for their services, typically encompassing wages, salaries, bonuses, and benefits. It is the total rewards provided in exchange for work performed.
How do working conditions affect SUPPLY
Good working conditions encourage a higher supply of labour to a workplace, and vice versa.
Firms that offer employees more flexible working hours, the opportunity to work from home, holiday leave entitlements and a pleasant working environment will attract more labour.
Some jobs offer different things which may incentivise offering labour even without high wages:
Opportunity to travel
Provide excellent training opportunities and experience
Since the COVID-19 pandemic, offer increased flexibility of working hours + location ( eliminate commuting time and help employees to balance work/life)
How does ‘Human capital + skills + experience + education’ affect labour supply?
Most jobs require some level of training or experience, and some roles require a formal qualification or licence (such as airline pilots or nurses).
The supply of labour is limited by the availability of human capital (the number of people with the appropriate skills for available jobs.)
Labour supply shortages often occur for jobs that require advanced skills - acquiring those skills can take years + involve significant costs.
A country’s education and training system (alongside skill-based immigration) helps determine the supply of skilled workers in an economy.
Define ‘HUMAN CAPITAL’
Human capital: total sum of the knowledge, skills, training, experience of workers that contributes to the process of production. Reflects “quality” of a labour force + is the main influence on productivity growth
Define ‘OCCUPATIONAL MOBILITY’
The availability of labour to move between different occupations in response to wage differentials and employment opportunities.
Define ‘GEOGRAPHICAL MOBILITY’
Two factors that limit GM
The ability of labour to move between different locations in response to improved wage differentials and employment opportunities.
Factors that limit geographical mobility of labour include;
The cost of relocating, including travel, transportation, and real estate costs.
The personal upheaval associated with moving, such as breaking ties with family and children changing schools.
How does ‘Occupational + geographic mobility of labour’ affect the supply of labour?
The supply of labour will be affected by its responsiveness to changes in demand for labour in different industries and areas. There are two types of labour mobility;
The degree of occupational mobility depends on the education and skill requirements required for an occupation and the time taken to gain those credentials.
As the skills required for an occupation increase, it becomes more difficult for labour to move into that occupation in response to improved wage or job opportunities.
Those jobs and occupations that require workers to relocate more distant locations, with fewer educational and entertainment opportunities, will receive a lower supply of labour.
As a result, employers in remote locations may need to offer higher wages to attract workers.
Define ‘THE LABOUR FORCE PARTICIPATION RATE’
The percentage of the civilian population aged 15 years and over who are in the workforce (that is, either working or actively seeking work).
How does ‘participation rate’ effect supply of labour?
All the previous factors help to determine the proportion of the population that decides to supply its labour.
If there is a larger participation rate there will be a more abundant supply of labour.
Define ‘LABOUR FORCE’
consists of all the employed and unemployed persons in the country at any given time.
People may decide not to participate in the labour force because to pursue further study, take care of family, or concentrate on leisure activities, or would rather rely on other forms of income.
What is one other factor that effects the supply of labour?
The supply of labour may also be affected by government policy decisions or the collective action of those providing labour within an industry.
Australia, historically, has filled gaps in its labour market through immigration.
Professional associations such as the Law Society or Australian Medical Association impose standards of education and professional conduct on their members.
The Government can also limit the supply of labour to particular occupations by imposing certain qualification and licence restrictions.
What factors influence the participation rate?
In the short term, the state of the economy will be the most important influence.
The participation rate is procyclical - in times of economic growth, people are more inclined to actively seek work, since there are better prospects of finding a job. Vice Versa.
Trends in the ageing of the population and the age of retirement are long-term influences on participation rates. Participation rate will decrease as the proportion of the population over 65 increases - retirement.
Recent generations have seen a sustained increase in the participation of women in the workforce.
This reflects changing social attitudes, increased childcare support, An increase in female participation. It was the primary cause of a rise in the participation rate to record levels in 2023.
Increased school retention rates due to young people remaining at school longer, as well as seeking further full-time tertiary education, mean that people tend to join the workforce later in life.
Define ‘THE AUSTRALIAN WORKFORCE’
The Australian workforce refers to the total pool of individuals who are employed or actively seeking employment in Australia. This includes workers across various sectors and industries, encompassing full-time and part-time employees, self-employed individuals, and those on casual or temporary contracts. The workforce is a key component of the country’s economy and is influenced by factors such as population demographics, economic conditions, and government policies.
The workforce can be divided into two categories:
Define ‘EMPLOYED’
Define ‘UNEMPLOYED’
EMPLOYED: have one or more hours of work per week.
UNEMPLOYED: currently available for work, actively seeking work, unable to find it - results in labour not being effectively utilised.
From an economic point of view, two aspects of the workforce are important: what are they?
Size: The bigger the workforce, the greater the contribution it can make to the production of G&S.
Quality: A well-educated, highly skilled, healthy workforce is more productive.
What 3 factor effect the size and quality of the workforce?
the size of the population
the age distribution within that population
educational patterns
