Labour Demand and Supply Labour Demand and Supply

11 Economics11 Economics

IntroductionIntroduction The labour market involves the interaction The labour market involves the interaction

between employers (those who control between employers (those who control capital) and employees (known as capital) and employees (known as employment relations)employment relations)

If the labour market is inefficient, it If the labour market is inefficient, it significantly hinders the capacity of an significantly hinders the capacity of an economy to grow (production possibilities)economy to grow (production possibilities)

Question - list the things you can think of that Question - list the things you can think of that firstly support a strong labour market, and firstly support a strong labour market, and secondly which hinder a strong labour marketsecondly which hinder a strong labour market

Demand for LabourDemand for Labour Businesses (firms) offer wages in return for labour. It Businesses (firms) offer wages in return for labour. It

is a market; if there is strong demand for the goods or is a market; if there is strong demand for the goods or services in an industry, generally, wages will go up services in an industry, generally, wages will go up because firms have to offer higher wages to attract because firms have to offer higher wages to attract workersworkers

‘‘Derived demand’ - this means that the demands for Derived demand’ - this means that the demands for labour are a derivative (secondary effect) of the need labour are a derivative (secondary effect) of the need for firms to produce goods and services to make a for firms to produce goods and services to make a profitprofit

Labour market - as prices for labour falls, a firm Labour market - as prices for labour falls, a firm will employ more labourwill employ more labour• Is this right? Why, why not?Is this right? Why, why not?

Demand for Labour 2Demand for Labour 2 Output of the firmOutput of the firm

• If firms experience higher sales, they need more labour to If firms experience higher sales, they need more labour to keep up with demandkeep up with demand

There are many things that influence a firm’s capacity There are many things that influence a firm’s capacity to produce. They include:to produce. They include:• General economic conditions - if good, more demand and General economic conditions - if good, more demand and

vice versavice versa• Consumer tastes - they change, and so therefore does the Consumer tastes - they change, and so therefore does the

demand for labour inputs.demand for labour inputs. List some examplesList some examples

• Demand for an individual firm’s products - some firms Demand for an individual firm’s products - some firms simply have superior products and marketing campaigns simply have superior products and marketing campaigns which keep their output high.which keep their output high.

Demand for Labour 3Demand for Labour 3 Productivity of labourProductivity of labour

• In Australia, approximately 80% of cash In Australia, approximately 80% of cash outflows go towards labour costsoutflows go towards labour costs

• With such high costs, immense savings can With such high costs, immense savings can be made with just a slight change to a firm’s be made with just a slight change to a firm’s labour costslabour costs

• How?How? Capital machineryCapital machinery

Define productivity of labour in your booksDefine productivity of labour in your books

Computer Work/ HomeworkComputer Work/ Homework Use the computers to investigate some of the Use the computers to investigate some of the

following statistics:following statistics:• What is Australia’s unemployment rate?What is Australia’s unemployment rate?• How does it compare to other OECD countries? How does it compare to other OECD countries?

Compile a list of the unemployment rates of other Compile a list of the unemployment rates of other countries with similar characteristics to Australiacountries with similar characteristics to Australia

• How does Australia’s wage rate compare to other How does Australia’s wage rate compare to other countries?countries?

• What proportion of Australia’s labour market is What proportion of Australia’s labour market is employed in manufacturing, services etc?employed in manufacturing, services etc?

• Find other statistics of interest that is relevant to Find other statistics of interest that is relevant to Australia’s labour market.Australia’s labour market.