1.2.5 The Labour Market

a) Factors affecting the demand for labour:

  • Demand for the final product (derived demand) - The demand for labour depends on the demand for the final product as labour is required for its production.

  • Availability of substitutes - Labour may be replaced with an alternative which is cheaper in the long run, such as machinery. Therefore the demand for labour would change.

  • Productivity of workforce - Higher productivity increases the value of employing workers, therefore increasing demand for labour.

b) Factors affecting the supply of labour

  • Population size - The total number of people available for work influences can determine the supply of labour.

  • Migration - The movement of workers across regions or countries would impact labour availability in a certain region.

  • Age distribution of the population - The proportion of the working age would determine the amount of people able to work.

  • Retirement age - The age at which people stop working affects how long individuals can contribute to the labour market.

  • School-leaving age - The time at which people finish their education affects when they are able to enter the workforce.

  • Female participation - The amount of females who decide to work will impact the number of people in the workforce.

  • Skills and qualifications - The amount of skilled and educated people in the population impacts the number of people eligible for certain jobs.

  • Ability to move geographic locations/move to different types of employment - The ability of workers to move from one location to another or between industries impacts the availability of workers in the area.

c) Importance of the quantity and quality of labour to business

Quantity of labour

The number of workers available to a business is important to ensure production goals are met and avoid operational delays.

Quality of labour

Skilled and well-trained workers improve productivity and quality, allowing businesses to grow and innovate.

d) Impact of education and training on human capital and quality of labour

Education and training enhance the skills of workers, allowing them to become more productive and increasing their overall quality. Some impacts of education and training on labour are:

  • Increased productivity due to improved efficiency in tasks.

  • Higher adaptability to changes.

  • Increased innovation.

  • Increased economic growth due to productivity.

e) The labour market diagrams

Effects of Shifts

  • Shift in Demand for Labour:

    • A shift towards the right increases wages and employment.

    • A shift towards the left decreases wages and employment.

  • Shift in Supply of Labour:

    • A shift towards the right decreases wages but increases employment.

    • A shift towards the left increases wages but decreases employment.

f) Trade union involvement in the labour market

Definition: A trade union is an organisation formed by workers to protect the rights and interests of its members.

Impacts of trade union involvement in the labour market:

  • Improved working conditions

  • Increased wages

  • Reduced inequality

  • Job security

  • Increased costs for businesses/employers