Topic 4: Demand for and Supply of labour Flashcards
What is the labour market?
it is where individuals seeking employment interact with employers who want to obtain the most appropriate labour skills for their prod’n process
Explain how the D for labour is a derived D?
the D for labour is derived from the D of G&S in the economy
labour is demanded only because it is needed for firms to produce G&S and make profit
What are the factors that affect the D of labour?
- the output of the firm
- the productivity of labour
- the cost of other inputs
How does the output of the firm impact the D of labour?
GENERAL ECONOMIC CONDITIONS (AGGREGATE DEMAND)
strong growth = more D for labour
recession= = less D for labour
CONDITIONS IN THE FIRM’S INDUSTRY
a change in consumers taste and preferences for different G&S will cause the D for labour
THE DEMAND FOR AN INDIVIDUAL FIRM’S PRODUCTS
if more people D a firm’s products then that firm would need to obtain more labour to account for the higher D (despite the firm’s industry or the economy’s conditions
Explain why firms don’t generally use their full capacity
firms do not always fully utilise their resources and tend to hoard labour to avoid having to trains new staff when prod’n increases
What is aggregate demand?
TOTAL demand
Consumption (C)
Investment (I)
Government Spending (G)
Net exports ( exports(X) - Imports(M) )
How does the productivity of labour impact the D of labour
AGGREGATE D IS RISING FASTER THAN PRODUCTIVITY OF LABOUR:
firms will demand for more labour to account for the increase in prod’n
AGGREGATE D REMAINS THE SAME BUT PRODUCTION OF LABOUR INCREASES:
firms will not demand for more labour since there is not need to. Esp because their productivity of labour has increased, they may have a decline in their D for labour
AGGREGATE D DECLINES BUT PRODUCTION OF LABOUR INCREASES:
the D for labour made by firms will decline even further
How do you calculate the productivity of labour?
labour input
How does the cost of other inputs impact the D for labour?
Businesses will employ more labour when the cost of labour declines or is less then the cost of capital and vice versa.
How does the interest rate also represent the firms opportunity cost?
The interest rate reps the firms opportunity cost because instead of financing capital expenditures, they could be earning returns on its funds rather than investing them back into their own business operations
What are the factors that impact the S of labour?
- Pay levels
- Working conditions
- Education, Skill, and Experience requirements
- The mobility of labour
- The labour force (work force) participation rate
- Government policy
- Collective action of those providing labour
How does pay levels impact the S of labour?
higher wage offered generally means the more people are willing to sacrifice their time for the job
How does working condition impact the S of labour?
attractive and more preferable working conditions encourage a higher supply of labour whereas unattractive and less preferable working conditions will encourage less labour
How does education, skills, and experience requirements impact the S of labour?
a country with high levels of human capital is more likely to have low unemployment
there may be a lower supply of labour to firms that require higher levels of education, skills, and/or experience since acquiring that level of human capital takes up a lot of time and effort that not all people will be willing to sacrifice
What is human capital?
the total sum of the knowledge, skills, training, and experience of workers that contributes to the process of prod’n. It reflects the quality of a labour force and it is the main influence of productivity growth
