Labour Market More Notes
Labour Market More Notes
Labour Market More Notes
All these factors affect the demand for labour within the economy. However a
broad generalisation is not enough to come to conclusions given the broad
number of labour markets catering for different occupations within the economy.
Since many jobs are different, there exists different level of qualifications and
skill set requirements hence the term human capital. As such an exploration into
the supply of labour provides further insights into the labour market.
The supply of labour is provided by individuals and households and generally
determined by wage rates. It follows then that an increase in wage rates for an
industry will attract more workers. However in reality, this principle functions to a
certain extent, inhibited by two main reasons. Firstly, it would be illogical to
assume generalise labour into a single category. For different occupations, there
exist different supplies of labour. Take the finance sector for an example which
accounts for 10 percent of total jobs, it would be impossible for any worker to
easily acquire a job within the industry. The reason for this comes down to the
skills and educational requirements necessary inherent within each different job.
The second reason why the increase in wage equates to an increase in supply
principle fails to work is the backwards bending nature of the supply curve. As
wage rates increase, it will reach a point where workers are earning enough
money and therefore wish to spend more time on labour. At this point the supply
curve bends backwards, however this case usually only applies for a small
percentage of the labour market. In order to provide a thorough analysis in the
labour market, it is best to restrict the study to an upwards sloping curve of
supply. That aside, there are many general factors which affect the supply of
labour including:
1. Substitute occupations
If real wage differentials between occupations are significant, shifts in
labour from one occupation to another can occur from the desire to earn
higher incomes.
2. Barriers to entry
There may be artificial limits placed upon an industrys supply of labour.
For example for legal professions and medicine, there is often a strict
entry criterion as opposed to other occupations such as teachers. This
restriction often results in higher wage rates.
3. Occupational mobility
Occupational mobility refers to the ease at which labour can shift from one
occupation to another and hence between markets. If more people are
trained with the necessary skills, the supply of labour that occupation will
increase.
4. Non-wage outcomes
With the supply and demand of labour consistently changing throughout the
years, it becomes important to study trends in the labour market. These trends
can be summarised in the following points:
The demographic of the workforce has considerably changed with the rise
in womens participation rates attributed to changing societal attitudes. As
such, the current workforce is 72% male down from 80% in past decades.
Over 53% of women are working, up from 40 percent since 1979.
Changing work conditions within Australia has been seen as desirable by
some workers whilst undesirable for others. Over the last few decades, a
general increase has been seen in the weekly hours of work from an
average of 35 to 45 hours. However many employers and businesses are
providing more flexible and fairer arrangements for workers in return.
The increasing role of technology in our lives has altered the skill
requirements of workplaces around Australia. Structural changes can lead
to widespread unemployment. One major example would be the
replacement of bank jobs through the growth in ATMs and online banking.
Moreover, advancements in technology have led a shift from blue collar
jobs to white collar jobs.
The demise of union influence and membership, which in certain cases
leaves workers vulnerable to the individual actions of employers. The
removal of centralised wages has allowed workers to negotiate wages with
employers however this has had an adverse effect with many employers
choosing to replace these workers with others willing to work for lower
pay.
The labour market is similar to the market for goods and services however as a
result of the human factor, it also varies significantly. Generally the demand for
labour will derive from the performance of firms and ultimately the economy
while the supply of labour is determined by wage rates and the population. Many
factors such as skill requirements and education also come into play, thus
making it hard to create a perfect economic model for the labour market.
Further notes:
It is easy to view the current weakness in wages growth and household incomes
in Australia as simply a function of the economic cycle (loss of high wage jobs in
mining sector and their replacement by lower wage jobs in other sectors).
However it would be a mistake to blame everything on the cycle and inevitable
post mining adjustment. Focusing solely on the cycle ignores the beneficial
impact that structural reform of the labour market could have on household
incomes.
Examining wages and productivity growth over three distinct episodes shows
how important labour market reform and productivity are to wages growth. The
three episodes
1. Regulated labour market (1979-1992)
2. Labour market deregulation (1993-2007)
3. Partly re-regulated labour market after 2007