Topic 4- Labour Markets

Why is labour a derived demand?

Because it is derived from the demand for goods and services. Eg. Increased consumer demand → increased input to meet consumer demand → increased demand for labour. 

What factors influence the demand for labour?

The output of the firm, productivity of labour and the cost of other inputs.

Describe how conditions in a firm’s industry will impact labour demand:

Changes in the patterns of consumer demand will impact labour as it is derived from consumer demand. Changes in consumer taste and preferences will result in a change of allocation of labour between different industries. Ultimately, the demand for labour will increase in industries that see a rise in demand for their products.

What influences the demand for an individual firm's products?

Their effectiveness in selling goods and services on the marketplace, which is determined by good quality and reputation among other things.

How does labour productivity impact labour demand?

The productivity of labour and overall labour costs determine the extent to which firms use labour in production.

How is labour productivity calculated?

Total output ➗Labour input

How can labour productivity be increased?

Through investment in technology or through improvement in employee skills (education and training).

What else can impact the demand for labour?

Price of capital, as some capital is a substitute for labour.

Provide a contemporary example with statistics and evidence of an industry’s increased demand for labour:

In 2003, when there was the onset of the mining boom, the mining industry employed 87,500 people around Australia. By 2012, employment in the mining industry had risen more than threefold to 278,000 people.

What is the labour market an example off?

The factor market (factors of production).

Describe a labour market supply curve:

Like an ordinary supply curve, the labour supply curve slopes upwards, as the higher the wage, the more individuals will be willing to work.

How is the labour market different from most  product markets?

In most product markets, firms supply the product, and individuals demand it for consumption. In labour markets, it is the opposite, individuals supply the resource, and firms demand it.

How does pay/ remuneration (income or payment received by owners of factors of production) impact the labour market?

Wages and salaries paid to employees impact the supply of labour for an individual firm or industry. The higher the wage, the more people will be willing to sacrifice their leisure time to work. While important, it is not the only determinant of the supply of labour.

What non monetary factors influence the supply of labour?

Working conditions, human capital, skills, experience, education and training levels, the occupational and geographical mobility of labour, and the labour force participation rate. 

Describe how working conditions influence the supply of labour:

The attractiveness of the working conditions will have an impact on the supply of labour. Attractive working conditions will result in a greater supply of labour in a particular industry or firm.

Give examples of what things might make a firm’s working conditions attractive:

Examples of things that make a firm’s working conditions attractive include flexible working hours and good business culture.

What is human capital?

The total sum of knowledge, skills, training, and expertise of workers, which contributes to the process of production.

What is a country with high levels of human capital likely to achieve?

Low unemployment

Why might there be a lower supply of labour to firms that require workers to be skilled and educated?

Because the acquisition of education, skills and experience requires significant time and opportunity cost.

What is occupational mobility?

The ability of labour to move between different occupations in response to wage differences and employment opportunities.

What does the degree of occupational mobility depend upon?

Education, skills and time to gain credentials.

What is geographical mobility?

The ability of labour to move between different locations in response to improved wage or employment opportunities.

What factors might limit geographical mobility?

The costs of relocating (travel, transportation, real estate), personal upheavals associated with moving (eg breaking ties with family and friends).

Who is a potential participant in the workforce?

Anyone aged 15 or over.

Who does the working age population consist of?

People between the ages of 15 and 64.

What is the labour force/ workforce?

All employed or unemployed persons in the country at any given time.

Why might people decide not to participate in the workforce?

Because they take the time to study, they look after a family or they are unlikely to find a job.

What factors impact short term participation rate?

The state of the economy and immediate economic incentives (eg changes in government benefits/ welfare rules)

What factors can impact long term participation rates?

Trends in the aging of the population, the age or retirement, rising female workforce engagement, availability of flexible work and childcare, health trends and educational attainment levels.

Explain school retention rates:

The amount of people who decide to complete their high school education. Increased school retention rates can occur due to a rising tendency for young people to remain at school for longer, often seeking full time tertiary education.

Who are the employed?

People over 15 working one or more hours a week for pay.

When does full employment occur?

When cyclical unemployment (job loss caused by economic downturns) is zero.

Who are the unemployed?

People over 15 who are willing, able and actively seeking work but are unable to find a job. This means that labour resources within an economy are not being fully utilised.

How does population increase?

Through natural increase (more births than deaths over time), or through net migration (permanent new arrivals over permanent departures, over the period of one year).

Give some contemporary examples of trends in the supply of labour:

• Male participation rates have fallen drastically from over 80% in the 1970s to 71% in the 2018-19 season.

• Labour force participation for women has shown a strong upwards trend, driven by the increasing participation of married women.

Give some contemporary examples of trends and data relating to the Australian workforce:

Australia’s unemployment rate:

• July 2024: 4.2%, up from 3.5% Covid recovery, but down 7.5% in 2021

Australia’s participation rate:

• 67.1%- which is a rise from the 64% during lockdowns

Economic growth:

• 1.1%

Employed people:

• 14.5 million

Population increase:

• Australia’s natural increase has declined over the past few decades

• Net migration accounts for 40% of Australia’s population growth since WW2

Age distribution:

• Proportion of population in the 15-64 age group is becoming to lessen, as the Baby boomers as aging

Educational patterns:

• Someone with a bachelor’s degree will on average earn 2.4 times as much as someone who didn’t finish high school.

• In the 10 years leading up to 2018, there was a 6 percent increase in workers aged from 25 to 34 with a post school qualification. (Rise from 69% to 70%)

What types of occupations will often provide higher wages and other benefits?

Ones that require high levels of skills or education, ones that have less appealing working conditions and ones with less occupational mobility.

Describe what is experienced by younger and older workers in terms of wages:

Younger workers will often have lower income levels due to less education and skills, and older people will also see a decline in income levels as they begin to rely on pension.

Describe some differences that can be experienced because of gender in terms of wages:

There is still some discrimination in the labour force, there is a gender pay gap as women are forced to reduce paid hours due to fulfillment of other roles such as childbirth. Some unnamed restrictions that prevent women from reaching high paid roles.

What is enterprise bargaining?

Negotiations between employees and employers about pay and work conditions at the level of the individual firm.

What is income distribution?

The way in which an economy’s income is distributed among the members of different social and socioeconomic groups.

Describe income distribution within occupations:

The shift from a centralised wage determination has contributed to an increase in dispersion of earnings within occupations. The declining level of union membership has contributed to greater variations in wage levels in industries.

What is superannuation?

A form of saving individuals cannot access until they reach retirement age

What are non-wage outcomes?

Benefits that many employees receive in addition to their ordinary and overtime payments. Eg. sick leave, super, flexibility.

List some arguments for a more equitable distribution of income from work:

-Encourages the labour force to increase education and skill level, so there is an increase in the quality of the labour force. 

-Provides the incentive for workers to work longer and harder, improving labour productivity.

-More mobile labour force, so a more efficient allocation of resources.

List some of the arguments against a more equitable distribution of income from work:

-Reduces overall utility, satisfaction in society

-Reduces individual merit

-Inequality reduces economic growth

-Social class division, poverty

Give a contemporary example of something relating to the differences in income from work:

Average weekly earnings: Average total earnings have grown at an annual average rate of 2.6% during the past two decades.

During the 5 years leading up to 2019, annual wage growth slowed to an average of 1.6%

Gender: In 2019, the average weekly earnings of women were only ⅔ of those of men.

How do you calculate the unemployment percentage?

Total unemployment ➗ Labour force (emplyed and unemployed) *100

How do you calculate the labour force participation rate?

Labour force ➗ Working age population *100

What is structural unemployment?

A mismatch of skills demanded by employers and those possessed by unemployed people. It can be caused by a structural change in an industry or region.)

What is a policy response that can help reduce structural unemployment?

Training initiatives for the people with skill mismatches.

What happens when productivity growth rises slower than wage growth?

Individuals become unemployed.

What is long-term unemployment?

Unemployment that has continued for more than 12 months, and the unemployed individuals become increasingly out of touch with the labour market.

What is seasonal unemployment?

Caused by seasonal changes in specific industries, cycles, independent of the business cycle. Eg fruit picking, Unemployment rate is often seasonally adjusted because of this, to iron out swings in the unemployment rate.

What is frictional unemployment?

When people moving between jobs or returning to work have difficulty finding employment. It often takes time for such individuals to find employment, so a small segment of the unemployment rate is represented by these people.

What is hard-core unemployment?

The unemployment of individuals who might be unsuitable for work due to personal reasons such as physical or mental illnesses.

What is hidden unemployment?

Individuals who are not counted in the unemployment rate as they have given up looking for employment.

What is a recession?

A decrease in economic activity in the business cycle, two consecutive quarters of negative growth

What is structural change?

The process by which patterns in production in an economy are altered over time, and so certain products and processes of production disappear.

What is the underutilisation of labour?

The sum of unemployed and underemployed as a percentage of the labour force.

What is underemployment?

People who are working part time or casual but desire more hours.

Give some contemporary statistics, data or examples that are related to unemployment:

• Unemployment peaked at 10.7% 1992-3, due to a severe recession in Australia. This recession was contributed to by structural changes and macroeconomic reform.  

• 1993-2008, gradual downward trend in underemployment for 15 years, where it fell to 4%. In 2008 the Global Financial Crisis (GFC) triggered a worldwide recession, however, Australia’s increase in unemployment was smaller than most other advanced economies. 

• Unemployment was back down to 5% by 2010. 

Geography:

• Regional areas of Australia have higher levels of unemployment than metropolitan areas. 

Covid:

• Prior to Covid, was at 5-6%, during Covid was around 7.5%, but would have been at around 12-15% if not for government payments. 

• Returned to 5.5% in 2021, and to 3.7% in 2022.

Structural employment:

• Structural employment is the biggest contributor to the unemployment rate. 

Immigration:

• The lack of immigration during/ after Covid forced businesses to hire the structurally unemployed, which decreased efficiency and contributed to inflation.

What is part time work?

Labour that takes less than 35 hours a week.

Outline the benefits and disadvantages of part time work:

Employers have greater flexibility, and employees are able to balance family/ other commitments. Casual work, however, has less job security.

Describe the casualisation of work:

A greater level of casual work lessened the structural employment rate. A reason behind this was that many low skill jobs before required apprenticeships, but no longer do. While this is good, this casualisation leads to less job security and a lack of policies to protect the casual workers.

What is a trade union?

An association of workers that aims to advance the interests of its members by improving their wages and working conditions.

What is the role of trade unions?

To represent employee interests, exercise bargaining power in negotiations with employers, and to restrict the labour supply (interactions between supply and demand create the minimum wage).

Give some contemporary examples, statistics and evidence relating to unions:

Trade unions in Australia have fallen in membership due to:

• Industry change

• Changes to wage determination

• Changes in the nature of employment 

Wage freeze of 2009:

• In 2009 minimum wage levels were frozen during the height of the GFC, meaning that workers experienced a reduction in real wages, 

• The Fair Work Commission awarded wage increases 2010-2017, arguing that this was not in conflict with the goals of lower unemployment and sustaining low inflation. 

Theory:

• Wage increases will raise production costs for firms, possibly increasing unemployment due to a decreased demand for labour, however, higher wages increase consumer purchasing power, increasing the demand for business output, and therefore increasing the demand for labour.