Demand for and Supply of Labour You will learn about:
The demand for labour by individual firms • labour – a derived demand • factors affecting demand – output of the firm – productivity of labour – cost of other inputs The supply of labour • factors affecting the supply of labour – pay/remuneration – working conditions – human capital, skills, experience, education/training levels – occupational and geographic mobility of labour – participation rate
You will learn to: Examine economic issues
examine the relationship between work and the quality of life
analyse the factors that create differences in incomes from work
predict impacts on society and the economy of changes to the nature of work and the workforce
Apply economic skills
compare and contrast the labour market with product markets
Traditional economics sets out some basic premises. Let's think these through and see where they are happening in our everyday lives.
The labour market is one example of a factor market
People sell their labour and are compensated for the opportunity cost of their time
Labour is a derived demand as it derives from consumers' demand for goods and services
The demand for labour follows the law of demand
Micro and macro factors influence the demand and supply of labour
If the cost of capital falls and the cost of labour rises, then the demand for labour will decrease
Capital deepening describes when the capital to worker ratio increases, making workers more productive and businesses will decrease their demand for labour
Capital widening describes when the capital to worker increases keep pace and businesses will increase their demand for labour
Wages, working conditions and the skills, experience and education required affect the supply of labour
There are factors that constrain labour, which include the ability of people to change jobs either because of where they are located or what skills, education and training they require.
Can you examine the relationship between work and quality of life?
Reference: What motivates us to work (ecnmy.org)
People go to work for money, but that’s not the only reason.¹ Our careers can be a major part of our lives, and many people find fulfillment and satisfaction in the workplace. Other’s don't. When you ask young people what they want to do when they grow up, a lot of them are probably going to think not just about how much money they’ll earn, but also about the things they like to do, or how they think they can feel useful.
Economics traditionally treats work as an entirely unpleasant thing that people only do to make money. But some economists are starting to do experiments to see how true this actually is.² One experiment asked people to play simple games and rewarded them for how well they did. The catch was, for some people the potential reward was very high (up to $300), and for others it was relatively modest (up to $30). For games that only required routine repetition (like typing the same letters over and over), people offered a higher reward did better. But surprisingly, for games that required reasoning or creativity (like solving a puzzle), the people offered the higher reward did worse.
Another study tried to rank the most important factors for motivation.³ Apparently the number one thing is whether we find our work interesting. Then, in ranking order, it’s all about whether we have good wages, job security, good working conditions, opportunities for promotions and growth in the organization and a feeling of inclusiveness within the company. Economics often comes down to finding out what people’s end goal is when deciding what to do with their time and skills and trying to work out the best way to achieve it – understanding the nuances of why people go to work every day plays a huge role in doing this right.
The way we think about work is broken, Barry Schwartz, 2014 https://www.ted.com/talks/barry_schwartz_the_way_we_think_about_work_is_broken?language=en#t-281114
The surprising truth about what motivates us, Dan Pink, 2010 https://www.youtube.com/watch?v=u6XAPnuFjJc
What work do you get paid for? What work doesn't count?
WRITE: What is the relationship between work and your quality of life?
Can you analyse the factors that create differences in incomes from work?
The world’s 22 richest men have more wealth than all of the women in Africa. Why?
What other factors create differences?
The real wage of a job is a combination of monetary and nonmonetary compensation. Nonmonetary compensation such as job satisfaction, level of fun, safety, etc. affect the supply of workers for a particular job.
Can you predict impacts on society and the economy of changes to the nature of work and the workforce?
Australia has experienced a 3-way shock from:
The global economy tanked in 2020, in fact the NY Exchange suspended trading after a price war between Saudi Arabia and Russia over oil. Jeff and Elon lost billions over night. The Morrison government provided a stimulus package to counteract expected downturns in trade and economic growth. Economists are saying it's a supply-side shock.
What does this mean?
People couldn't go to work.
Casuals didn't get paid.
People couldn't buy what they need.
Coronavirus: How the pandemic has changed the world economy
The coronavirus pandemic has reached almost every country in the world. Its spread has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the virus. Despite the development of new vaccines, many are still wondering what recovery could look like. In the BBC article, "Coronavirus: How the pandemic has changed the world economy", there is a selection of charts and maps to help you understand the economic impact of the virus so far.