The Labour Market

; a place where the market forces of supply and demand interact. Within the labour market, supply refers to employees or people who supply their labour and demand refers to employers or people who need the labour.

Example of a labour market diagram:

Factors affecting the demand for labour:

• Labour is derived demand adn therefore influenced by the level of economic activity. As aggregrate demand increases, the demand fro labour also increases

• Price of labour (wages)

• Productivity (output per given unit) of labour: as labour productivity increases firms will require less labour to complete tasks to meet current demand, as labour productivity decreases firms will require more labour to complete tasks to meet current deamnd

- in the long run, if labour is more productive than capital, there will be a labour/capital substituion (more likely to be the opposite way around)

- in the short run, an increase in labour productivity leads to a decrease in the demand for labour.

• Cost of other inputs: relative cost of capital and labour- labour/capital substitution

• Output of the firm- will increase or decrease the demand for labour

• Industrial relations policy: e.g., unfair dismissal legislation

Factors affecting the supply of labour:

• Wage price (the price of labour itself)

• improved working conditions

• size of population

• participation rate

• age distribution of the population

• geographic mobility→ ease of movemen of workers between locations

• occupational mobility→ ease of movement of workers between occupation

• skills: education levels of labour (directly affects productivity)