LABOUR AND UNIONSPt. 1

LABOUR MARKETS As you prepare for entering the “real world” you

probably think that you can get a job just because you make assumptions about the demand.

You may think that “everyone has teeth so I’ll be a dentist, their will always be a demand, right?”

It’s not that simple.

The labour market is a complex system of interrelated factors based on supply and demand, just like the market for other products and services.

Question: In the labour market, who is the supplier, the consumers and what represents the price?

DEMAND FOR LABOUR There is a connection to demand for labour

and demand for products in that they both relate for quantity demanded at a given price – the price of labour being the wage rate.

When consumers use their buying power to indicate the value of products at various price levels we call it direct demand because consumers determine demand directly.

Demand for resources, including labour, is known as derived demand because it is dependent on consumer demand for the goods and services being produced.

This means the higher demand for a particular good or service, the greater the quantity of labour demanded to produce it.

The demand for labour depends on more than just the demand for a product.

Demand for labour is also affected by how much each worker can produce in a specific period of time, a concept know as productivity.

Productivity, price of a good and the wage rate is what determines the demand for labour.

LAW OF DIMINISHING RETURNS

As more and more workers are hired in the short run, each successive worker has less and less capital to work with.

Thus, the productivity of each additional worker is less than the productivity of the preceding worker.

MRPL

The marginal revenue product of labor is the change in revenue that results from employing an additional unit of labor.

Firms and businesses can use this information to determine the best number of employees to hire that will maximize revenue.

PAOLO’S PIZZAUnits of Labour

Total Product Marginal Product

Marginal Revenue

Product of Labour

4 180 - -

5 244 64 $640

6 276 32 $320

7 292 16 $160

8 300 8 $80

9 304 4 $40

10 306 2 $20

MARKET LABOUR DEMAND CURVE This curve shows the quantity of labour

demanded by all firms for a particular type of labour at each of the possible wage rates.

FACTORS THAT SHIFT THE LABOUR DEMAND CURVE

The three major reasons why the demand curve for labour shifts are the result of:

1.A change in the demand for the product of labour.

2.A change in the price of other productive resources.

3. A change in worker productivity.

MARKET LABOUR SUPPLY CURVE

This curve shows the number of people willing to offer their services to firms as each of the possible wage rates.

FACTORS THAT INFLUENCE THE SUPPLY CURVE Wages are clearly a major motivator for individuals

who will chose to become available for work. But other factors also come into play such as a specific skill restricts some people from entering the market.

Geographic location is another factor as labour markets that are in larger population centres tend to have a greater quantity of labour supplied as each wage rate compared to areas that have a small population.

Dangerous or unpleasant occupations also influence the number of people willing to offer their services at any given wage rate.

FACTORS THAT SHIFT THE LABOUR SUPPLY CURVE

The previous factors tend to be fairly stable and do not shift the supply curve at all, however, there are some variable factors that can result in a shift:

1.Changes in income tax rates2.Changes in size and composition of

population3.Changes in household technology4.Changes in attitudes about work

WAGE DETERMINATION

How are wages determined in market places?

In order for an equilibrium in wages to occur there needs to be an agreement between the amount of labour supplied by households and the quantity of labour demanded by firms.

WAGE DETERMINATION

Firms often offer higher wages to attract workers which tends to encourage more labour to be supplied. If wages are too high there will be a surplus of workers as more people will seek these positions.

In this situation many workers are willing to offer their services for less which tends to drive down the wage rate.

If the market determines that the wage equilibrium for pizza workers is $160 per day that would mean that Paolo’s Pizza would hire 7 people.

WAGE DIFFERENTIALS It is important to note that the wage that is

offered to workers is only one factor in an individuals choice to accept a job.

Companies can offer additional non-monetary benefits to entice workers, this can include: vacation time, working conditions, health/dental coverage, investment opportunities and many other fringe benefits.

Take a moment to view this graph. What can you learn from it?SHSL = Supply of High-Skilled LabourSLSL – Supply of Low-Skilled LabourAnd so on…

AFFECTS OF EDUCATION ON WAGES

Education Level Average Earnings(2009)

Professional Designation $128,000

Master’s Degree $74,000

Bachelor’s Degree $57,000

Some College $32,000

High School $31,000

High School Drop-out $20,000

QUESTIONS TO CONSIDER See page 484

a)With your table partners, discuss and answer question 14.3 and 14.4

Using your PEDs see if you can discover occupations with a favourable employment outlook across Canada. Make a list in your notes.

See the links below for assistance: http://

www.servicecanada.gc.ca/eng/qc/occupational_outlook/oo_CapNat.pdf www.jobbank.gc.ca check out the job market trends section!