ECON 101: Chap. 4.1 - Demand and Supply at Work in Labour Markets

Excess Supply of Labour

When wages are higher than the equilibrium wages in a labour market, more people are looking for jobs but cannot find one because companies find it unprofitable to hire labour at the high rate they would need to pay.

Shifts in Labour Demand

• When there’s an increase in labour demand, the wages increase, and the leads to an increase of employment

• There’s a higher output price, meaning the added output from an extra worker is more valuable

• Education and training is not a factor shift in the demand curve for labour, since it only increases the person’s employability

Shifts in Labour Supply

• An increase in labour supply reduces the wage and leads to a raise in employment

• With more workers, the added output from an extra worker is smaller

Factors that can shift the Demand Curve for Labour

• Demand for output

• Technology

• number of companies

• government regulations

• price and availability of other inputs

Factors that can Shift the Supply Curve of Labour

• number of workers in the market

• Government policies

Technology and Wages: Applying Demand and Supply

• How will new technologies affect the wages of high-skill and low-skill workers?

• Low-Skilled Workers: Demand curve would actually lower or go left on the supply curve, changing the equilibrium, since tech. Change makes labour more productive which reduces the need for unskilled workers

• High-Skilled Workers: Demand curve would go higher or to the rest on the supply curve, changing the equilibrium, since new tech need more skilled workers to operate them

Price Floors in Labour Market

• Minimum wage is a price floor that makes it illegal for an employer to pay employees less than a certain hourly rate

• Gov’t requires a minimum wage to protect low-income workers from exploitation

Living Wage

• amount a full-time workers worker would need to make to afford the essentials for life (food, clothing, shelter, and healthcare) in a certain economy

Theoretical Argument of Economists’ Mode for Minimum Wage

• Scenario: when the non-restricted wage is at a lower price than the price floor, the number of workers are at a higher amount

• Imposing a wage floor to at least 2 more increments would lead to an excess supply of labour and the quantity of labour demanded lowers significantly

• Leading to employers firing a lot of workers