Topic Four Labour Markets

Demand for and supply of labour The demand for labour by individual firms
Firms demand labor by offering wages

Labour a derived demand

Demand for labor differs from consumer demand for goods and services because the demand for labor is a derived demand Derived demand: where demand for one good or service occurs as a result of demand for another. The firm must hire more labor to help with the high production levels, increasing labour demand labor is demanded only because it is needed firm the firms to produce goods and services and make a profit.

Factors affecting demand Output of the firm

If a firm experiences higher sales, it will increase production and therefore increase demand for labor Such factors that effect the level of output of a firm includes Increased economic activity Pattern of consumer demand Consumer tastes + preferences influence allocation of labor The demand for firms products Quality of products Customer service

Productivity of labour
Productivity of labor can be defined as the output per unit of labor per unit of time Increase labor productivity will have either a positive or negative effect

Dependent on: quality of labor force (E.g. skill, education, health, desire to perform) labor productivity can have: * Positive effect on aggregate demand (total demand rising) * Negative effect on aggregate demand (total demand falling or unchanged)

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Cost of other inputs If the cost of labor is relatively high, firms will choose capital over labor. If the cost of labor is relatively high, firms will choose capital over labor. This will mean that the demand for labor will decrease. Alternatively if the cost of capital is higher than the cost of labor, the demand for labor will increase.

The supply of labour Factors affecting the supply of labour Pay/remuneration

Higher the wage or salary offered, the more people will be prepared to sacrifice their leisure time and supply their labor

Working conditions
Attractive working conditions encourage a higher supply of labor to a workplace

Human capital, skills, experience, education/training levels

Human capital is the sum of knowledge, skills, training and experience of workers that contribute to the process of production High levels of human capital result in more productive workforce

Occupational and geographic mobility of labour

Occupational Mobility refers to the ease of which employees can move to a job from different job Geographic Mobility refer to the ease of which the employees can move to the location of a job

Participation rate
This refers to the proportion of the working age population (employed, unemployed and people looking for work) in the workforce.

The Australian workforce Definition of the workforce

Defined as everyone 15 years of age and above who are either working or actively seeking work.

Employed
A person is defined as employed if they have one or more hours of work per week.

Unemployed
A person defined as unemployed if they currently are available for work, are activity seeking work but unable to find Unemployment rate = No. of unemployment x 100 Total labour force

General characteristics of the Australian workforce

Australia has experienced a significant casualization of the workforce (a growth in part-time and casual work) in the last 30 years due to more women working, employers choosing to avoid paying maternity or sick leave, and changing preferences Australia has also experienced a trend towards sub-contracting because employers can receive work from contractors without having to pay them benefits of a normal employee - Full time workers are employed persons who usually work more than 35 hours a week Part time workers are employed persons working more than one hour but less that 35 hours per week

Labour market outcomes Differences in incomes from work

Wages and salaries are the major source of income for most Australian household provides 59% of income

Wages are generally paid per hour. This means that you have to be present and working in order to get paid. Salary refers to how much you get paid every year Real wages refer to wage rates adjusted to inflation rate Nominal wages refer to the amount of money given to an employee

Wage outcomes for all persons by income groups, occupational groups, age, gender and cultural background
Higher levels of training and education are higher paid because they are professionals, whilst lowest paid groups are labourers and personal services workers The middle aged section of workforce earn the most Men tend to earn more than women. Weekly women earn 65% of men. Immigrants earn less

Trends in the distribution of income from work over time The wide spread use of enterprise bargaining has created a much greater difference in wage incomes for both different industries and individuals.
Differences also result from changes in structure of the economy emerging industries requiring skilled labor pay wages
Are the benefits that many employees receive in addition to their ordinary and overtime payments, such as sick leave, superannuation Can vary from one workplace to another and in some industries, Award rates are a minimum wage rate determined by Fair Work Australia Collective agreements are wage rates organized with a firm between employees and employers Common Law contracts are wage rates organized between employer and employee

Non-wage outcomes for different occupations

Arguments for and against a more equitable distribution of income from work
Economic benefits of inequality * can productive capacity of resources and thus real GDP per capita. - Encourages the labour force to increase education and skills levels - Encourages the labour force to work longer and harder - Makes the labour force more mobile Economic costs of inequality - Can reduce economic growth - Reduces consumption and investment - Creates poverty and social problems

Labour market trends Unemployment /underemployment

Individuals want to work but are unable to find a job

Cyclical unemployment influenced by the business cycle Structural unemployment mismatch between the skills demanded by employers and those possessed by unemployed people Long-term unemployment unemployed for 12 months or more Seasonal unemployment seasonal nature of some jobs Frictional unemployment occurs as people change jobs and will always be present, but can be limited by efficiency of job placement services Hard-core unemployment refers to individuals who are generally considered unemployable Hidden unemployed refers to people who are unemployment but not actively seeking work Underemployment unemployed casually or part-time but seek fulltime work

Part-time work
Working 20 hours or less per week Casualization of work

Employees have occasional working hours but do not follow any set pattern. Has no sick leave or holiday pay.
Outsourcing, Sub-contracting
Outsourcing (or sub-contracting): when an organization pays another business/subcontractor to perform a function.

Contractors A person or company that undertakes a contract to provide materials or labor to perform a service or do a job. It is an agreement between two or more persons Trends

Upward trend in the average level of unemployment between 1970s and 1990s Average rate of unemployment fell to an average of 5.5% in the first decade of the 21 st century Levels of unemployment peaked in the early 1990s (10.7%) highest since great depression Lowest point of unemployment was early 2008 3.9% (Financial Crisis)

Labour market institutions Unions Trade union: association of workers that aims to advance the interests of its members by improving their wages and working conditions.
Types of unions:
Occupational unions: Members from persons who possess a particular occupational skill, or range of skills, regardless of the industry or firm in which they work Industry based unions: cover workers in a particular industry Enterprise-based unions: represent only the workings of one specific enterprise General unions: cover a whole range of workers across various industries

The most important union in Australia is Australian Council of Trade Union (ACTU) Represent workforce Negotiate and resolve disputes

Employer associations
Are organizations that are formed to represent the interests of businesses, especially in industrial relations and in lobbying the government.
They have two main roles: o They represent and promote the interests of their members by lobbying the government o They assist employers in managing industrial relation issues, such as representing their members

An example is Australian Industry Group (AIG)

Current employment /industrial framework.

Industrial Tribunals: Designed to prevent and settle industrial disputes AIRC: Australian Industrial Relations Commission - Main role to determine minimum set of work and pay condition, through setting awards. Key role to resolve industrial disputes through: - Conciliation: where tribunal provides a mediator who helps disputing parties reach an agreement. Arbitration: when tribunal makes a ruling that is legally binding on all parties. Used when conciliation is unsuccessful.

ECONOMICS FORMULA SHEET

Topic 1: Introduction to Economics Income (Y), Consumption (C) and Saving (S) Y=C+S C=Y-S S=Y-C Real Interest Rate = Nominal Interest Rate - Inflationary Expectations e.g. If the nominal interest rate was 8% on a mortgage loan and inflation was 3%, the real interest rate would be 5% Final Income = Gross Income - Taxation + Social wage (transfers) Topic 2: Consumers and Business Profit Maximisation Profit = Total Revenue (TR) - Total Cost (TC) Total Revenue (TR) = Price (P) x Quantity Sold (Q) Total Cost (TC) = Fixed Costs (FC) + Variable Costs (VC) Cost and Revenue Theory Average Cost (AC) = Total Cost (TC) Output (O) Marginal Cost (MC) = TC O Average Revenue (AR) = Total Revenue (TR) Output Marginal Revenue (MR) = TR

O Law of Diminishing Returns Average Physical Product (APP) = Total Physical Product (TPP) Units of Variable Factor (L) Marginal Physical Product (MPP) = TPP Topic 3: Supply and Demand Elasticity (E) = %Qd %P e.g. 15%/10% = 1.5 Topic 5: Financial Markets Interest Rate Spread or Margin = Lending Rate - Borrowing Rate Profit = Interest Income + Other Income - Costs

Topic 6: Government and the Economy Taxation Revenue = Tax Base x Tax Rate

Average Rate of Taxation and Marginal Rate of Taxation ART = Tax Payable Taxable Income x 100

MRT = Change in Tax Payable Change in Taxable Income

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