labor market - the market in which workers compete for jobs and employers compete for workers

Labour markets function through the interaction of workers and employers.

Labour economics looks at the suppliers of labor services (workers), the demands of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income.

Wage is a basic compensation for paid labour, and the compensation for labour per period of time is referred to as the wage rate.

The Labour Market

Refers to the demand for labour by employers and the supply of labour (provided by potential employees) Demand for labour is a derived demand - not wanted for its own sake but for what it can contribute to production

The demand for labour is dependent on the demand for the final product that labour produces. The greater the demand for office space the higher the demand for construction workers.

Demand for Labour Influenced by: Cost of hiring labour Wages/salaries National Insurance contributions Pension contributions Administration costs associated with tax payments and adhering to employment laws and regulations

- Productivity: - A measure of output per person per time period

Total Output Productivity = -------------------Quantity of Factor

Supply of Labour determined by: Size and structure of the population age, gender, etc. Skill levels required Education and training Number in higher education School leaving age Qualification types Fashion ,Time period Opportunity cost of work income and substitution effects

 The relative demand and supply of labour can help to explain differences in wage rates for different occupations
e.g. Supply of those able to train as nurses higher than those with the talent to be successful professional footballers, hence the higher wage rate of footballers!
Nurses help care for people and save lives, footballers entertain. One earns RS90,000 per day, the other Rs350.

 Other factors influencing wage differentials: Status attached to the job Discrimination Race Gender Sector public or private Trade Union power or influence Length of career Risk or danger involved Social or unsocial hours Shift patterns Productivity

Some jobs might attract a premium because of the danger or risk associated with carrying it out!

Macro and micro analysis of labour markets

Microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the labour market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, aggregate income and Gross Domestic Product.

The macroeconomics of labour markets

The labour force is defined as the number of individuals age 16 and over, who are either employed or actively looking for work. The participation rate is the number of people in the labour force divided by the population of working age that is not institutionalized. The non-labour force includes those who are not looking for work, those who are institutionalized such as in prisons or psychiatric wards, stay-at home spouses, children, and those serving in the military.

 The unemployment level is defined as the labour force minus the number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population , here self-employed people are counted as employed.

several types of unemployment are Frictional unemployment This reflects the fact that it takes time for people to find and settle into new jobs. If 12 individuals each take one month before they start a new job, the aggregate unemployment statistics will record this as a single unemployed worker. Technological advancement often reduces frictional unemployment, for example: internet search engines have reduced the cost and time associated with locating employment.

 Structural unemployment This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. If 4 workers each take six months off to re-train before they start a new job, the aggregate unemployment statistics will record this as two unemployed workers. Rapid industry changes of a technical and/or economic nature will usually increase levels of structural unemployment, for example: widespread implementation of new machinery or software will require future employees to be trained in this area before seeking employment.

 Natural rate of unemployment This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment e.g. recessions. It is the lowest rate of unemployment that a stable economy can expect to achieve, seeing as some frictional and structural unemployment is inevitable. Economists do not agree on the natural rate, with estimates ranging from 1% to 5%. The estimated rate varies from country to country and from time to time.

Demand deficient unemployment Any level of unemployment beyond the natural rate is most likely due to insufficient demand in the overall economy.

Neoclassical microeconomics of labour markets

Neo-classical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price (in this case the wage rate) and quantity (in this case the number of people employed).

The labour market differs from other markets in several ways. most important of these differences is the function of supply and demand in setting price and quantity. In markets for goods, if the price is high there is a tendency in the long run for more goods to be produced until the demand is satisfied. With labour, overall supply cannot effectively be manufactured because people have a limited amount of time in the day, and people are not manufactured.