1. Chapter 15
Labour

2. Definition of Labour
Labour is the human activity directed towards the production of wealth. Its payment is the wage rate.

3. Demand for Labour
The demand for labour as a factor of production is a derived demand, i.e. labour is demanded for its contribution to the production process or from the demand for the goods it produces.
The demand curve for labour is its MRP curve, which is downward sloping from left to right.
Every worker is demanded up to and including the worker whose MRP and wage rate are equal.

4. Factors Affecting an Individual Firm’s Demand for Labour
The MRP of the worker
Wage rate
The demand for a firm’s output
Price of other factors of production
Government incentives
Availability of new technology
Corporation tax
Entrepreneurs’ expectations

5. Factors that Determine the Supply of Labour
The supply of labour in the economy is the total number of hours worked in the economy during a specific period. It is determined by a number of factors, including:
Size of population
Wage levels in the economy
Levels of income tax
Number of hours worked

6. Factors that Determine the Supply of Labour (Continued)
Labour mobility
Government policies
Participation rate, which is dependent on:
Social attitudes
Attitudes of homemakers
State of the economy
Welfare benefits

7. The Labour Supply Curve
The equilibrium wage rate
Horizontal supply curve of labour
Restricting entry into a profession
Trade unions and wage rates
Wage drift
Ratchet economy

8. Geographical Mobility
Geographical mobility is the ability/ease of
a worker to move from one area to another.

9. Factors that Inhibit Geographical Mobility
Existing social connections in the area where a family lives
The disruption that could be caused to children’s education
The cost of selling and buying a house elsewhere
A general fear or reluctance to consider a major change in one’s life

10. Economic Policies that Could Increase Geographical Mobility
Increase housing
Educational facilities
Social infrastructure
Supports by governments
Updated information

11. Occupational Mobility
Occupational mobility is the ease/ability of a worker to move from one job to another.
Occupational Mobility

12. Factors That Inhibit Occupational Mobility
Lack of transferable skills
High costs associated with retraining
Some professions present barriers to entry

13. Economic Policies that Could Increase Occupational Mobility
Education courses
Training
Government policies
Trade union barriers

14. What factors influence the elasticity of demand for labour?
Percentage of labour costs to total cost
Substitutability of labour
Elasticity of demand for the finished good
Productivity of labour

15. What factors affect the efficiency of labour?
Amount of training
Management expertise
Level of education
Innate talent
Quality/quantity of other factors available
Living conditions of the workforce
Degree of specialisation
Climatic conditions
Dedication of the worker

16. How appropriate is MRP for setting wages in the public sector?
Physical output is not always produced
Non-market output
Capital and labour used together

17. Why do different categories of workers receive different wages?
Different skills
Length of training
Educational qualifications
Nature and conditions of the job
Possession of innate talent
Tradition attached to certain jobs
Non-monetary benefits
Negotiating strength of the workers’ trade union

18. John Stuart Mill (1806 – 1873) Wage fund theory
Increasing returns to scale
Law of diminishing returns