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Factors affecting the demand of labors

The demand for labor is derived from the demand of goods and services.
When the demand for goods and services rises the firms require more labor
to produce them. Thus the demand for labor is known as derived demand.
Thus when factors such as population, income rise the demand for goods
and services rise leading to a rise in demand for labor.
Factors affecting supply of labor
The composition of population: There is a higher portion of workers (low
dependency ratio) this means that there are more workers in a country
Educational institutes: This is rather complicated. If there are more
educational institutes
Wage is the cost of labor
Minimum wage: A wage set by the government, which is above the

In the diagram above the equilibrium wage is 6 and the equilibrium level
of employment is 100 but when government imposes a minimum wage of
9, the demand falls to 40 while the supply rises to 150.Thus 110 workers
are unemployed.

Advantages of minimum wage

1. Those workers who remain employed enjoy higher living standards
2. Workers will be motivated to raise their productivity
Disadvantages of minimum wage
1. Creates unemployment: The supply of workers rise while the demand
2. Rise in government expenditure
3. Might cause Cost push inflation
Why wages differ?

In the diagram above D is the demand curve and S is the supply curve of an
unskilled worker e.g. an electrician. Thus their wage is W. On the other hand
for a skilled worker the demand is higher (D1) because he is more
productive, also his supply is lower (S1); because gaining skills requires
time, efforts and money. Thus, their wage is W1
We can therefore see that skilled Workers are paid higher than unskilled
workers are.

Governments macroeconomic activities

1. Controlling inflation
2. Achieving growth
3. Increase employment
4. Balance of Payments equilibrium
5. Protecting the environment
Conflicts between objectives

Inflation verses economic growth

Inflation verses high employment
Economic growth verses Balance of payments equilibrium
Economic growth verses environment

Co-operatives: A group of individuals/firms who work together in order to

achieve economic growth
Trade unions: An association of workers whose main interest is to protect
their interests e.g. CBA associations in Bangladesh.
Functions of trade unions
1. Bargaining higher wages
2. Negotiating for non wage benefits
3. Fixing working hours and holidays
When is a trade union more powerful?
1. When it has lots of members
2. The nature of the industry(labor intensive)
3. Government support
Functions of money:
1. It is a medium of exchange
2. A store of wealth
3. A measure of value
4. A means of making deferred payments

Characteristics of money
1. Durability
2. Divisibility
3. Portability
4. Limited in supply
5. Uniformity (look alike)
Regional problems: A regional problem arises in a particular region of a
country, such as unemployment storage of resources, overcrowd etc.
Types of external economies of scale
1. Ancillary services
2. Skilled labor
3. Better infrastructure
1. Auxiliary services: These are services given to a large industry as a
source of support. For example: The garments industry in Bangladesh
had to import its materials from different countries. As it grew small
firms such as yarn and cotton firms also developed which benefited the
garments industry as they could take materials from the domestic firms
reducing costs.
2. Skilled labor: When a industry grows its gets the chance to train its
workers before they join the firm\
3. Better infrastructure
Mobility of labor: The ability of a worker to move from one region to
another (geographical mobility) or from one occupation to another
(Occupational mobility)
Barriers of mobility
1. Retraining costs
2. Retraining time
3. Natural ability