The Labour Market

Introduction to Labour Markets Consist of people willing to supply labour and businesses that demand labour. Same principles as goods markets apply. Can be… Local National International Exist for… Doctors, accountants, shop assistants, teachers train drivers etc…

The Demand for Labour Private/public sector organizations only likely to employ additional workers if they add more value than they cost to employ. Value measured by extra revenue created. For example… Employee generates additional R5000 in revenue & costs R3000 to employ √ Employee generates additional R2000 & costs R3000 to employ X Demand for labour closely related to the wage rate and productivity of workers.

Wages linked to productivity Wages linked to labour productivity in a number of ways. Overtime: basic wage payment + increase for working extra hours. Piece rate pay: fixed amount paid for each unit of output they produce. Performance-related pay: linked to firms profits or revenues.

The Supply of Labour Total supply of labour in an economy = labour force. Supply of labour in particular labour market = people willing and able to do the job on offer.   Eg. market supply of train drivers consists of… people currently employed as train drivers people in other occupations who want to become train drivers people unemployed but willing and able to be train drivers.

Wages of train drivers rise → more people want to be train drivers Wages of train drivers rise → more people want to be train drivers. Market supply curve slopes upwards. Higher wage rate = more labour supplied.

The market wage for a job

Factors causing demand for labour to change Consumer demand for goods and services Consumer demand rises → firms expand output → increase demand for labour. Increasing productivity Labour becomes more productive → adds more value over and above their wage costs → firms demand more labour.   Changes in the price and productivity of capital Machinery & equipment becomes cheaper or more productive → firms replace labour capital- intensive production methods.

1915 2015

Factors causing demand for labour to change Changes in other employment costs If increased by government, demand for labour may fall. Eg. Spending on health and safety equipment or UIF contributions.

Factors causing supply of labour to change Changes in the net advantages of an occupation People compare advantages and disadvantages of different jobs before reaching a decision. In addition to wages what else might they consider?  

Decline in promotion prospects, holidays etc Decline in promotion prospects, holidays etc. of school teachers relative to other occupations.

Factors causing supply of labour to change Demographic changes Changes in size and age distribution of the Education and training Increase in supply of workers with different skills. Eg, computer programming.

Will the equilibrium wage change? Wages will remain unchanged until forces of demand and supply change. A rise in the demand for labour OR a fall in its supply will cause market wages to rise. A fall in the demand for labour a rise in its supply will bring market wages down.

Impact on Labour Demand? Impact on Labour Supply? What has changed? Impact on Labour Demand? Impact on Labour Supply? Impact of Market Wage? Nurses are offered new contracts with shorter working weeks   Consumer spending on flat-screen televisions increases significantly Government raises retirement age of public sector workers Computerized assembly lines boosts labour productivity in car plants Overtime payments for airline employees to be scrapped Major retail chain announces it will remain open 24 hours each day Survey finds more people are working part-time and flexible hours Assaults on police increase Government announces it will tax tips received by restaurant and hotel staff from next April Statutory maternity leave and pay to be increased New technology means more office workers can now work from home

Why do people earn different amounts? Wage differentials: differences in wages between different jobs   Eg, CEOs of the JSE’s top listed companies earn, on average, 725 times their workers’ average salary.   Average salaries of various South African professions 2015 Accountant Average Salary: R223,626 Financial Manager Average Salary: R452,646 Office Administrator Average Salary: R98,306 Operations Manager Average Salary: R309,464 Personal Assistant Average Salary: R140,471 Receptionist Average Salary: R64,686

What causes wage differentials? Different abilities and qualifications If these two professions were equally paid, what would happen???  

What causes wage differentials? 'Dirty' jobs and unsociable hours Some jobs paid more to attract a supply of labour. These are called compensating differentials.  

What causes wage differentials? Satisfaction People prepared to some jobs without very high pay due to inherent satisfaction.  

What causes wage differentials? Lack of information about jobs and wages Decreasing due to job websites.

What causes wage differentials? Immobility Some people don’t want to relocate. Can’t afford housing in the new area. Labour force mobility: the ease with which workers can move between jobs and different parts of the country. Average salaries in South Africa (2010)… Johannesburg R234 651 Sandton R235 661 Witbank R182 327) Pretoria R179 932 Cape Town R177 816 Durban R166 361 Port Elizabeth R138 073

What causes wage differentials? Fringe benefits Some jobs may offer lower wages than others because they offer more perks.

Government intervention in labour markets   The government employs thousands of teachers, doctors, civil servants, army personnel and other public sector workers.   Governments intervene in labour markets many reasons. For example… To protect the rights of employees and employers Employment laws & health and safety regulations. Protects employees from employers Protects employers from trade unions.

Government intervention in labour markets To outlaw and regulate the restrictive practices of powerful trade unions and employers Powerful employer could pay wages that are too low while Powerful trade union may seek wages that are too high.   To reduce unemployment Skills and training for unemployed people required to get a job. Financial assistance to firms in areas of high unemployment. To stop discrimination Illegal to employ people based on their sex, age, race or religion.

Government intervention in labour markets To raise the wages of very low-paid workers Minimum wage laws designed to protect vulnerable and low-paid workers from exploitation by powerful employers. Some employers argue that minimum wages set above free market wage levels will simply raise production costs and reduce the demand for labour.

The minimum wage debate…