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 LabourPrivate/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…

o people currently employed as train drivers

o people in other occupations who want to become train drivers

o people unemployed but willing and able 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 changeConsumer 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

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 demand for 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?

Factors causing supply of labour to change

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

Demographic changes Changes in size and age distribution of the

Education and training Increase in supply of workers with different skills. Eg, computer programming.

Factors causing supply of labour to change

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

OR

a rise in its supply

will bring market wages down.

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 2015Operations Manager

Average Salary: R309,464Personal Assistant

Average Salary: R140,471Receptionist

Average Salary: R64,686

AccountantAverage Salary: R223,626

Financial ManagerAverage Salary: R452,646

Office AdministratorAverage Salary: R98,306

What causes wage differentials? Different abilities and qualifications

If these two professions were equally paid, what would happen???

'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.

What causes wage differentials?

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.

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.

Government intervention in labour markets

The minimum wage debate…