SBECCOLLEGE

HNDECONOMI
CSNOTES

DEMANDANDSUPPLYFORLABOUR(
WAGESDETERMI
NATI
ON)

4.
1Demandf
orl
abourasader
iveddemand

Whati
sthedemandf
orl
abour
?

Theconceptofl
abourmarketcanbevi
ewedasa‘fact
ormar
ket
.’Fact
ormar
ket
spr
ovi
deaway
forf
ir
msandempl oyer
stofindtheempl
oyeest
heyneed.

Thedemandf
orlabourshowshowmanywor
ker
sthef
ir
msar
ewi
l
li
ngandabl
etohi
reatagi
ven
ti
meandwagerate.

Theref
ore,
demandforlabourisaconceptthatil
lust
rat
estheamountoflabouraf
irmiswil
l
ing
toemployatapar
ti
cularwager at
e.However,thedeter
minat
ionofequi
l
ibri
um int
helabour
marketwil
lal
sodependont hesuppl
yoflabour .

Equi
li
bri
um i
nthelabourmar
ketdependsont hewagerat
efi
rmsar
ewi
l
li
ngt
opayandt
he
amountofl
abourwill
i
ngtoprov
idethenecessarywor
k.

Aswesaid,t
hedemandforl
abourshowshowmanywor
ker
sanempl
oyeri
swi
l
li
ngandabl
eto
hi
reatagiv
enwagerat
eatanygiventi
me.

Demandf
orl
abourcur
ve

Ascanbeseenabov
ewhenwagesi
ncr
easedf
rom W0t
oW1demandf
orl
abourf
all
from Not
o
N1.

Thel
abourdemandcur
veshowsani
nver
ser
elat
ionshi
pbet
weent
heempl
oymentl
evel
andt
he

1
wager
ate.Whenwagesarelower
,labourbecomesr el
ativ
elycheaperthancapital
.Wecansay
t
hatwhenthewagerat
estart
sdecreasing,asubst
it
uti
onef fectmightoccur(
from capi
tal
to
morel
abour)t
hatwoul
dleadtomor elabourbei
ngempl oyed.

Remember:
thefactor
sofproduct
ionar
etheresourcesusedt
opr
oducegoodsandser
vices.
Theyi
ncl
udeland,l
abour
,capi
tal
,andent
repr
eneurship.

Thedemandf orreinfor
cementbarsishi
ghduet otheirf
requentuseintheconst
ruct
ioni
ndust
ry.
Reinforcementbar sareof
tenmadeofst eel
;thus,
highdemandf orthesewouldal
socorr
espond
tohighdemandf orst eel
.Int
hiscase,st
eeldemandi sderi
vedfrom thedemandfort
he
rei
nforcementbar s.

Assume( withoutconsideringtheeff
ect
sofCOVI D-19)thatther
eisanincreaseddemandf orai
r
tr
avel.Thiswil
linevi
tablyleadtoanincr
easeindemandf orair
li
nepil
otssi
nceairl
ineswil
lneed
moreoft hem tosupplythegr owingdemandforairtravel
.Theairl
i
nepilot
s’demandi nt
his
scenari
owi l
lbederivedf r
om thedemandf orai
rtravel.

Deriveddemandisthedemandf orafactorofproduct
iont
hatresul
tsf
rom t
hedemandf
or
anotheri
nter
mediategood.I
nthecaseofl abourdemand,i
tisderi
vedfr
om t
hedemandfora
productoraser
vicethatl
abourproduces.

Afi
rm wil
ldemandf urtherl
abouronlyifanincreasei
nt helabourforcewil
lguar
anteetobr
ingi
n
moreprofi
ts.Essent
ial
ly,i
fthedemandf oraf i
rm’sproductincreases,t
hefi
rm wil
ldemand
morelabourtosellt
headditional
unitsofgoodsorser vi
ces.Theassumpt i
onher ei
sthatt
he
marketswil
ldemandt hegoodspr oducedbylabour,whichint urnwil
lbeemployedbyfi
rms.

Fact
orst
hatcanaf
fectt
hedemandf
orl
abour
.

1.Labourpr
oduct
ivi
ty

I
flabourproduct
ivi
tyincr
eases,
fir
mswi ll
demandmorelabourateachwagerateandthefir
m’s
demandf orl
abouritsel
fwil
li
ncrease.Thi
swoul
dshi
ftthelabourdemandcur
v eoutwards.

2.Changesi
ntechnol
ogy

Changesint
echnol
ogycancauset
hedemandf
orl
abourt
oincr
easeanddecr
easedependi
ng
onthesit
uat
ion.

Iftechnologicalchangesmakelabourmor eproduct
iverel
ativ
etotheotherf
actor
sof
production( suchascapit
al)
,fi
rmswoul ddemandani ncreasedamountofworker
sand
substit
utet heotherfact
orsofproduct
ionwithnewlabour .

Forexampl e,t
hepr oducti
onofcomputerchi
pswillrequi
reacert
ainamountofskill
edsoft
ware
andhar dwareengineers.Thus,t
hedemandforsuchwor ker
swouldincr
ease.Thiswouldshift
thelabourdemandcur veoutwar
ds.However,
wit
ht heproduct
ionandsubsequentcompetit
ion
from otherfi
rms,wecoul dassumethatchi
pdevelopmentcouldbecomeautomat ed.The

2
subsequentresul
twoul
dbear
epl
acementofl
abourwi
thmachi
nes.Thi
swoul
dshi
ftt
hel
abour
demandcur v
ei nwar
ds.

3.Changesi
nthenumberoff
ir
ms

Changesinthenumberoff i
rmsoperati
ngi
ntheindust
rycanhaveanimmenseef
fectont
he
over
alll
abourmarket.Thisi
sbecausedemandforacertai
nfact
orcanbedet
ermi
nedbythe
numberoffir
mscur r
entlyut
il
isi
ngthatf
act
or.

Forexampl
e,ift
henumberofrestaur
ant
sincr
easesinacer
tai
narea,t
hedemandf ornew
wait
ers,
wait
resses,
cooks,
andotherfor
msofgastronomyworker
swilli
ncr
ease.Anincr
easei
n
thenumberoffi
rmswouldresul
tinanoutwar
dshif
tinthel
abourdemandcurve.

4.Changesi
ndemandf
orapr
oductt
hatl
abourpr
oduces

I
fthereisani
ncreaseindemandf ornewv ehi
cles,wewouldl
i
kelyseeani ncreaseindemand
forr
awmat er
ial
susedi nvehi
cleproduct
ion.Thiswouldl
eadtoani ncreaseindemandf or
workers,
asfi
rmswoul dneedpeopletomanuf acturet
hevehi
cles.Thiswoul dshiftt
helabour
demandcurveoutwards.

5.Pr
ofi
tabi
li
tyoff
ir
ms

I
faf i
rm’sprof
it
abil
it
yincreases,itwil
lbeabletohir
emor eworkers.Thi
swill
leadtoanincrease
i
nthedemandf orl
abour.Conv er
sely,
afirmthatismakingnoprofitandi
sconsist
entl
y
r
egister
ingl
osseswi l
lneedtol ayoffworker
sasi twil
lnotbeabl
et opaythem any
more.Thi s
wouldsubsequentl
yreducet hedemandf orlabourandshif
tthedemandcur v
eoflabourinwards.

4.
2Themar
ginalpr
oduct
ivi
tyt
heor
yofdemandf
orl
abour

Themargi
nalpr
oducti
vi
tytheoryofdemandforlabourst
atesthatfi
rmsoremployer
swil
lhi
re
worker
sofapart
icul
arty
peunt i
lthecont
ri
buti
onmadebyt hemarginal
workeri
sequal
tothe
costi
ncur
redbyhavi
nghiredthi
snewwor ker
.

Wehav etoassumethatthi
stheor
yisappli
edtowagesinthi
scontext.Thewagerat
ei s
deter
minedthrought
heforcesofdemandandsupplyint
helabourmar ket
.Thesemarketf
orces
ensuret
hatthewagerateisequalt
othatofthemar
ginalpr
oductoflabour.

Howev er
,thet heoryofdi mini
shingmar gi
nalreturnsassumest hatthemar gi
nal workerprov i
des
l
esscontributiontot hewor kthanthatofthei
rpr edecessor.Thetheoryassumest hatthe
workersarer elat
ivelythesame, meaningtheyar einter
changeable.Basedont hisassumpt ion,
manywor kerst hatar ehir
edreceivethesamewager at
e.Howev er,ift
hefi
rm wer etohire
workersbasedont hemar gi
nalproducti
vi
tytheor y,
thefir
m wouldt henmaximi seit
spr of
its.
Thi
scanonl yhappeni ft
hehiredmar gi
nalwor kerscontri
butemor einval
uethant hecosts
i
ncurredbyt hef i
rm.

3
4.
3Thedet
ermi
nant
soft
heel
ast
ici
tyofdemandf
orl
abour

Theelast
icit
yofdemandf
orl
abourmeasur
esl
abourdemand’
sresponsi
venesst
oachangei
n
thewager at
e.

Ther
ear
efourmai
ndet
ermi
nant
soft
heel
ast
ici
tyofdemandf
orl
abour
:

Theav
ail
abi
l
ityofsubst
it
utes.

Theel
ast
ici
tyofdemandf
ort
hepr
oduct
s.

Thepr
opor
ti
onofl
abourcost
.

Theel
ast
ici
tyofsuppl
yofsubst
it
utesi
nput
s.

4.
4WagesDi
ff
erent
ial

Wagedi
ff
erent
ialr
eferstodif
fer
encesinwagerat
esduetothelocati
onofcompany
,hour
sof
wor
k,wor
kingcondit
ions,t
ypeofproductmanuf
actur
ed,
orotherfact
ors.

I
tmaybethedif
fer
enceinwagesbetweenwor
ker
swithdi
ff
erentski
ll
sworkingi
nthesame
i
ndust
ryorwor
kerswit
hsimi
larski
l
lsworki
ngi
ndif
fer
enti
ndustr
iesorregi
ons.

Ty
pesofWagedi
ff
erent
ial

Ther
earedif
ferentcat
egori
esofwagedif
ferent
ial
andtheyare:occupati
onalwagedi
fferent
ial
s,
i
nter
-i
ndust
ry,i
nter-
fi
rm,i
nter
-ar
eaorgeographi
caldi
ff
erent
ial
sandper sonal
dif
fer
ent
ials.

1.Occupat
ional
Dif
fer
ent
ial
s:

Theseindi
catethatsincediff
erentoccupati
onsr equir
edif
fer
entqual
i
ficati
ons,
dif
fer
entwages
ofski
llandcarr
ydifferentdegreesofresponsibi
l
ity,wagesar
eusuall
yfixedonthebasi
softhe
di
ffer
encesinoccupat i
onsandv ar
iousdegreesofskill
s.

4
2.I
nter-
Fir
m Di
ff
erent
ial
s:I
nter
-f
irm di
ff
erent
ial
sref
lectt
her
elat
ivewagel
evel
sofwor
ker
sin
di
ffer
entpl
antsi
nthesamear eaandoccupati
on.

3.I
nter-AreaorRegional
Diff
erent
ials:
Suchdi ff
erenti
alsari
sewhenwor kersi
nthesame
i
ndust r
yandt hesameoccupationalgroup, butli
vingindif
ferentgeographi
calareas,
are
paiddiffer
entwages.Regi
onalwagedi fferenti
alsmaybeconcei vedintwosenses.Inthe
fi
rstsense,theyaremerel
yapar tofinter-
industrydif
fer
ential
sinapar ti
cul
arregion.

4.Int
er -
IndustryDiff
erent
ials:Thesedi f
ferentialsari
sewhenwor ker
si nthesameoccupat i
on
andt hesamear eabutindi ff
erentindustri
esar epai ddif
f erentwages.I nter-
industry
dif
ferentialsrefl
ectski
lldif
ferenti
als.Theindust riespayinghi gherwageshav emost l
ybeen
i
ndust ri
eswi thal ar
genumberofski ll
edwor kers,whil
ethosepay ingl esshav ebeen
i
ndust ri
eswi thal ar
gepropor t
ionofunski l
ledandsemi -skilledwor kers.Otherf act
ors
i
nfluencingi nter
-i
ndustr
ydi ff
erenti
alsaret heext entofuni onisati
on, t
hest r
uct ureofproduct
mar kets,theabili
tytopay ,
labour-
capitalratio,andt hestageofdev el
opmentofani ndustry
.

5.Personal WageDi f
ferentials:Thesear i
sebecauseofdi f
ferencesi nthepersonal
characteri
sti
cs(ageorsex)ofwor kerswhowor ki
nt hesamepl antandthesame
occupation.“Equalpayf orequal wor k”hasbeenr ecommendedbyt heI.L.
O.Conv enti
on(
No.
100),asalsobyI ndustrialCourts,LabourTr ibunal
s,theMinimum WagesCommi t
teeand
theFairWageCommi ttee.Buti npr act
icethispri
nciplehasnotbeenf ul
lyi
mpl emented
becausei noccupationswhi chinvolvestrenuousmuscul arwor k,womenwor ker
s,if
employed, ar
epai dlesst hanmenwor kers.

Fact
orst
hataf
fect
swagedi
ff
erent
ial

a)Diff
erenceinEffi
ciency:Allpersonsarenotequal lyef f
ici
ent.Theydifferi
nabili
ti
es.
Somear emor eeffici
entandsomear elesseffi
cient.Someot hersarenoteff
ici
entat
al
l.Anef f
ici
entwor kergi
v esbetteroutput.Hence,hei spaidhi gherwagesthan
others.Moreover
,theef f
iciencyrequir
ementi ndifferentjobsv ari
es.

b)Pr esenceofNon-Competi
ngGr oups: Soci
et yisdividedintoanumberofwor ki
ng
groups, whi
charenoncompeti
ng.Cast esy stem createssuchgr oupsi nIndi
a.Asa
result,achi
ldborntoasweeperwi llmostl ikel
ybeasweeperj ustasabl acksmit
h’s
sonwi l
lbeablacksmit
h.Besi
des, thechancesofr ecei
vingtr
ainingf orbett
er-
pai
d
occupat i
onsdependontheresourcesoft hef amil
y .Thus,i
nheritance,envir
onment,
traini
ngandsexar esomefactors,whi chcreat enoncompet i
nggr oupsinthesoci
ety.
Hence, worker
sbelongi
ngtodifferentgroupsar epaidatdiff
erentwager ates.

c) I
mmobi l
it
yofLabour:Labourisnotperfect
lymobi l
e.Theyarenormall
yshytomov e.
I
thasiner
tiat
osti
ckt oonejob.Somet i
mes, peoplearenotprepar
edtoaccept
hi
gherwagesifi
tnecessit
atesachangeofpl ace.Thi
saccountsfordi
ffer
encein
wageindif
fer
entpl
aces.Thepr esenceofnoncompet inggroupsinsoci
etymakes
l
abourmoreimmobile.Poli
ti
calbarri
ersagainstthefr
eemov ementoflabourfr
om

5
 onecount
ryt
oanot
herr
esul
tint
hedi
ff
erencei
nwagesi
ndi
ff
erentcount
ri
es.

d) Nat
ureofEmployment:
Thenatureofworkal
soinf
luenceswager ates.Dangerous
anddisagr
eeabl
eworkbringshi
ghermoneywagestoattractlar
gersupplyoflabour
.
Forexample,
acoalminergetshi
gherwagest
hanacl er
kint heoff
ice.Highmoney
wagesactascompensation.

e)Trai
ningandQualif
icat
ion:Jobsr
equir
ingspeci
alquali
fi
cati
onandappr
ent
iceship
general
lycommandhi gherwagesthanjobsl
earnteasi
lyandforwhi
chnospecial
tr
aini
ngisrequi
red.

f
) Product
ivi
ty:
Thisdif
fer
sindif
fer
entoccupat
ions.TheCobbl
er’
sjobi
snotas
product
iveasthatofaski
ll
edmotormechanicorofcler
kasthatofapr
inci
pal
ofa
coll
ege.

g)Regulari
tyofEmployment:
Ifthereisregul
aremploymentinajob,onemaydemand
l
owerwages.I ft
hejobisir
regularorseasonal
,wagehast obehigher
.Incaseof
I
ndia,youngmenpr ef
erlowpai djobsundergovernmentduet
osecurit
yand
regul
ari
tyofemploymenttoirregularandi
nsecurepri
vatej
obswithmore
remunerati
on.

I
mpor
tanceofwagedi
ff
erent
ial

Wagedi f
ferenti
alshaveagreateconomicandsocialsi
gni
ficance,
fort
heyaredir
ectl
yrel
atedt
o
theall
ocationoftheeconomicresourcesofacountr
y,i
ncludingmanpower,
growthofthe
nati
onalincome, andt
hepaceofeconomi cdevel
opment ,
suchwagedi f
fer
enti
alsaswill
:

(a)Causelabourt
obeal
locat
edamongdi
ff
erentoccupati
ons,
industr
iesandgeogr
aphi
cal
areasint
heeconomyinsuchamannerast
omaxi misethenati
onalproduct
;

(
b)Enabl
eful
lempl
oymentoft
her
esour
cesoft
heeconomyt
obeat
tai
ned;
and

(
c)Faci
l
itat
ethemostdesi
rabl
erat
eofeconomi
cpr
ogr
ess.

4.
5LabourCapi
talsubst
it
utabi
li
ty

Relat
ivepri
ceef f
ect:Thi
sreferst
othepri
ceofl
abourrel
ati
ve(compareto)thepri
ceofcapi
tal
.
Ifl
abourisrelat
ivel
ycheaperthancapi
tal
inagi
venproduct
ion,i
tiseasi
erforcapi
tal
tobe
substi
tut
edf orl
abour.

Mar
ginal
productef
fect
:Theext
raout
putofl
aborcompar
esocapi
tal
.

Fact
orrebal
ancingeff
ect:Thecostsofthefact
ors,forexamplethataffectsubsti
tut
ionare
i
mpor t
ant.I
fthecostofotheri
nfl
uencingfact
orsthatwillsuppor
tlabouraftersubst
itut
ing
capi
talar
echeap/easi
lyaccessi
blethensubsti
tut
ionbecomeseasy .

4.
6LabourEl
ast
ici
ty

6
Theel
ast
ici
tyofdemandf
orl
abourmeasur
est
her
esponsi
venessofl
abourdemandt
oachange
i
nthewagerate.

El
ast
icandi
nel
ast
icl
abourdemand

Whenthedemandf
orl
abouri
selasti
cthi
smeanst
hatasl
i
ghtchangei
nwagesl
eadst
oa
gr
eat
erchangei
nempl
oymentlevel
s.

Conv
ersel
y,i
fthedemandforl
abouri
sinel
asti
c,t
hismeanst
hatabi
gchangei
nwager
ateswi
l
l
l
eadtoasmallerchangei
nemploy
mentlevel
s.

Fact
orsoft
heel
ast
ici
tyofdemandf
orl
abour

Theel
ast
ici
tyofdemandf
orl
abourusual
l
ydependsont
hreemai
nfact
ors:

a)Labourcost sasaf i
rm’st otalpercent
agecost s:t
hisi
susuallythecaseinlabour-
i
ntensiveindustr
iesorserv i
ce-basedindustr
iessuchashot el
s,wherethewagesmake
upal ar
gepor ti
onofaf ir
m’ sexpenses.Thedemandf orl
abourher eisel
asti
c.Ifwe
assumet hatwager ateswer etoincreaseandweknowt hatwagesmakeupal arge
porti
onofaf ir
m’sexpenses, t
hent hefi
rm’soperati
ngcostswillsubsequent
lyincrease.
Thef i
rm’sresponse,i
nt hi
scase, wouldbet oreducethelabourdemandast hehigh
costsarenotbeingsust ai
ned.I nsummar y,whenlabourexpensesmakeupal arge
percentageofaf i
rm’stotalcosts,thelabourdemandwi l
lberelati
vel
yelasti
c.

b)Easeandcostoff actorsubstituti
on:thesubst ituti
onef f
ectofcapi talinputscanal so
aff
ectthedemandf orlabour.Thedemandf orlabourher ewi l
lmai nlybeel ast
iconlyby
theeaseofsubsti
tuti
ngl abour.Forexampl e, afirm canut i
l
iseitscashf l
owt oinvestin
securi
tycamerasforgreatersecur i
tyratherthanhav esecurit
yper sonnel.Thesecur i
ty
camerascostlessandt hesecur it
ypersonnel iseasyt oreplace,thust hedemandf or
l
abourwouldbeel ast
ic.Thisdoesn’ tapplytoot hersituati
onsl i
kewhenat askinvolvesa
skil
l
edandexper i
encedwor kforce,suchassof twareengi neers.Iti
sf armor ediff
icult
andevencostl
iertoreplaceskilledwor ker
st hannon- skil
ledwor kers.

c) Priceelasti
cit
yofdemandf ort hefinalgoodorser vi
ce:theel astici
tyofthef i
nal product
thatisbeingproducedalsohasani mpactont heelasti
cit
yofdemandf orlabour .Ifthe
elast
ici
tyofdemandf orthefinalproductislow, t
heelasti
cityofdemandf orlabourwi l
l
alsobel ow.Thisusuall
yhappenswhent hedemandf orthefinal productisinelastic
whenapr i
cechangehasl i
tt
lei mpactont hedemandf orthepr oduct.Thisenabl esthe
fi
rmt opassoncost sf r
om thel abourtowardst heconsumer ,whi chwoul dlowert he
elast
ici
tyofdemandf orthepr oduct.

4.
7Suppl
yforLabour

7
Thesupplyofl
abourrefer
stothenumberofhoursaworkeri
swil
li
ngandabl etowor
kinagiven
per
iod.I
tdoesn’tr
efert
othenumberofworkers.At
ypi
calsuppl
yoflabourcurv
ewouldshow
howmuchl abourapart
icul
arworkerpl
anst
osupplyatdif
fer
entwagerates.

Suppl
yofLabour

Ast
hepr
iceofl
abour(
wages)i
ncr
easessuppl
yofl
aboural
soi
ncr
ease.

Laboursuppl
ycanbeaf
fect
edby
:

 Encour
agi
ngi
nwar
dmi
grat
ion

 Rai
singt
heageatwhi
chpeopl
ecanr
eti
re

 I
nvest
menti
neducat
ionandt
rai
ningt
oincr
easet
henumberofski
l
ledwor
ker
s

 worki
ngcondi
ti
ons–t
hingsl
i
kesaf
ety
,comf
ort
,st
ressl
evel
scanbei
mpor
tant
consi
der
ati
ons

 j
obsat i
sfact
ion–somewor ker
smaychoosealowerpaidj
obi
fitof
fer
smor e
sati
sfact
ionorsenseofachi
evement;f
ori
nst
ancenur
singi
spai
dlesswel
lthansome
occupati
onswithasimil
arski
lll
evel
.

 Conv
eni
ence–forsomeworkersi
tmaybeimpor
tantt
ohaveaj
obt
hati
snear
byand
wher
ehoursar
efl
exibl
e,t
ofi
tinwi
thot
hercommitment
s.

 Wagerat
es:
Newwor kers(
suchasprevi
ousl
yunemployedpeopl
eormot
her
sret
urni
ng
t
owork)maybeat
tractedt
otheindust
rybyhi
gherwages.

El
ast
ici
tyofSuppl
yofLabour

Theel
asti
cit
yofsuppl
yoflabourt
oanindust
rymeasur
est
heext
entt
owhi
cht
hesuppl
y
ofl
abouri
sresponsi
vetochangesint
hewagerat
e.

8
 Wherei
tisr
elat
ivel
yel
asti
c,f
ir
mswi l
lbeabl
etorecr
uitmor
elabourwithonlyamodest
i
ncr
easeint
hewager at
e.Whereiti
sinel
ast
ici
tmaybenecessarytoofferasubst
ant
ial
i
ncr
easeint
hewager at
etoattr
actevenasmall
numberofadit
ionalworker
s.

 Theel
ast
ici
tyofsuppl
yofl
abourdependson:

a)Thelevelofskil
lrequi r
ed–t hesupplyofskil
ledlabourisusuall
ymor einelast
ic
thanunskill
edlabour .Thi
sisbecauseskill
edl abouri
susuallyspeci
fictoa
part
icul
arindustry.Forinstancedoctor
shav especial
istski
ll
sandknowl edge.I
t
i
sn’tpossibl
etoi ncreasethenumberofdoct or sinahospit
albyrecruit
ing
accountantstodot hej oboftreat
ingpati
ents.

b)Unski
ll
edl abour,bycontrastislessspecifi
ctoaparti
cularindustr
y.I
twouldbe
possi
ble,forinstance,f
orasuper mar kett
o‘poach’
wor kerstostackshel
ves
fr
om af i
rmt hatempl oyscleaners.Thecleaner
scouldsoonl earntodothework
ofshel
fstacki ng.

c) Thet i
meper i
odi nquesti
on–t hesupplyofl
abourismor eel ast
ici
nthelongrun
compar edtotheshor tr
un.I
tispossibl
etotrainmorewor ker st
odonewj obs
withti
me.Fori nstancemoreI.
T.professi
onalscouldbetrainedoveranumberof
years,buti
tisnotpossiblef
orpeopletoacquiretheseski
llsi nashor
terperi
od.

d)Thelev
elofunemploy
mentintheindustr
y–wherethereisahighnumberof
unemployedwor
kersi
nanindustr
yt hesuppl
yofl
abourwill
ber elat
ivel
yelast
ic.
Fir
mswi l
lfi
ndi
teasytor
ecrui
twithoutoff
eri
ngasigni
fi
cantincreaseinthewage
rat
e.

4.
8LabourMobi
li
ty

Thisrefer
stohoweasei
tisf
orl
abourt
omov
efr
om oneoccupat
ion/
locat
iont
oanot
her
.Ithas
thefoll
owingt
ypes:

I
. Geographi
call
abourmobil
it
yref
erstot
heeasewi
thwhi
chwor
ker
scanmov
e
fr
om oneplacetoanot
heri
npursui
tofwor
k.

Fact
orst
hataf
fect
edt
hist
ypeofmobi
l
ityar
e:

a.Famil
yti
es–worker
smayberel
uct
anttomovet
oadi
ff
erentpar
toft
he
count
ryandl
eav
ebehindf
ami
l
y(andfri
ends)

b.Housingcosts–thecostofhousi ngv ar
iesgreatl
yfrom onepartofthe
countr
ytoanother
.Housepr icesar emuchhi gherint heSouthEastthan
i
nnor t
hernregi
onsforinst
ance.Rent sinthepriv
atesectorarealsomuch
hi
gher.Forworker
sliv
inginsoci alhousing(councilorhousing
associat
ionownedpropert
ies)itisv erydif
fi
culttomov eint
oasi mil
ar

9
 propert
yinanot
herr
egi
onbecauseoft
hesev
ereshor
tageofsoci
al
housing.

c. Searchcost s–althoughmanyj obvacanciescannowbef oundonline,

it
canst i
llbecostl
yforanindi vi
dualtoapplyforajobinanotherpartofthe
country,parti
cul
arl
yifiti
nv olv
esattendinganinter
viewandhav ingtostay
overnight.Thisi
sparti
cularlydif
fi
cultforworker
sinl owpaidjobsorwho
arecur r
entlyonbenefi
ts;thecostofl ooki
ngelsewher ef
orwor kis
prohibit
ive.

I
I.Occupat
ionall
abourmobi
li
tyref
erst
otheeasewi
thwhi
chwor
ker
scanswi
tch
fr
om onekindofworkt
oanother
.

Occupat
ionalmobi
l
ityi
sli
mit
edbyt
hef
oll
owi
ngf
act
ors:

a)Di
fferencesinnat
uralabil
iti
es–somewor kerswi
ll
nothavethe
i
ntell
ectualorphy
sicalcapabil
it
iesofdoingsomekindsofwork.Wecan’
t
al
lchooset oberocketscienti
stsorrockstar
s,f
orinst
ance

b)Accesstotrainingandeducation–t her
ear esti
llmajorobst aclesfor
manypeopl eingettingpl
acesatt opuni ver
sit
iestost udyfor‘elit
e’
occupati
onssuchasl awandmedi cine,f
orinstance.Occupat ional
mobili
tyi
scl oselyl
inkedt
ot hewiderpr oblemsofdi ff
er encesin
opport
uniti
esf orpeoplef
rom diff
er entcl
asses, genderandet hnicit
y.

4.
9Bar
ri
erst
oent
ryi
nthel
abourmar
ket

Thesearer
est
ri
cti
onstothel
abour
.Anyf
act
ort
hatpr
event
sorr
est
ri
ctspeopl
efr
om ent
eri
ng
thel
abourmar
ket.Thear
e:

1.Regul
ati
ons:
gov
ernmentr
egul
ati
onssuchasl
i
censi
ngandmi
nimum wager
educet
he
l
abourfor
ce.

Minimum wagei sthewagesratebelowwhichiti

slegaltopayworker
s.Suchregulat
ion
i
ncreasethecostofproducti
onforfirms,
thusreducethedemandforlabour
.Thiscreat
e
adisequil
ibri
um i
nthelabourmarketasmor eworker
swillbeavai
l
ableforwork(hi
gh
supplyforlabour
)butemployer
swi l
lbewill
i
ngtohirefew(lowdemandf orl
abour)
.

Li
censingwil
ldet
erpeopl
efr
om t
hel
abourmar
ket
,eg.Dr
iver
sli
cense,
li
censef
or
nur
sing,ect
.

2.Inf
luenceoftr
adeunions:Tr
adeunionsar
eorgani
sati
onofworkersthatpr
omot eand
defendhewelfareofworker
s.Theoftendemandforhi
gherwages.Theincreaset
he
costofproduct
ionforfi
rms,t
hustheydemandforl
esslabour
.

3.Monophony
:Thi
sisasi
tuat
ionwhent
her
eisasi
ngl
eoronemaj
orempl
oyeri
nal
abour

10
 mar
ket
.Suchaf
ir
m sol
elydeci
deshowmuchl
abourt
ohi
re.

Rev
isi
on

Demandf
orLabour-Keyt
akeaway
s

 Theconceptoft
hel
abourmar
ketcanbev
iewedasa"
fact
ormar
ket
".

Thedemandforl
abourshowshowmanywor
ker
sthef
ir
msar
ewi
l
li
ngandabl
etohi
reatagi
ven
wagerat
eatagivent
ime.

 Labourdemandi
sder
ivedf
rom t
hedemandf
orapr
oductoraser
vicet
hatl
abour
produces.

Labourdemandcur
veshowsani
nver
ser
elat
ionshi
pbet
weent
heempl
oymentl
evel
andt
he
wagerate

 Thef
act
orst
hataf
fectt
hedemandf
orl
abourar
e:

l
aborpr
oduct
ivi
ty

changesi
ntechnol
ogy

changesi
nthenumberoff
ir
ms

changesi
ndemandf
oraf
ir
m'spr
oduct

f
ir
m pr
ofi
tabi
l
ity

 Themarginalpr
oducti
vit
yt heor
yofdemandf orlaborstat
esthatf
ir
msoremployer
swil
l
hi
reworkersofaparti
culartypeunti
lthecontr
ibut
ionmadebyt hemar
ginal
workeri
s
equal
tothecostincur
redbyhav inghiredt
hisnewwor ker.

 Thesuppl
yoflabormainl
yref
erst
othenumberofhour
sawor
keri
swi
l
li
ngandabl
eto
worki
nagivenperiod.

11