Posted: October 23rd, 2013
Labor market is the point where wage rates are determined, employers meet employees and the laborers find work that is offering their expected wage. The labor market can be local, regional or even international depending on the geographical location of the laborers, the employers and the job itself. The labor market can also refer to the resource market since at this point the demand meets the supply. The forces of demand and supply are used to explore the demand supply of labor. Various factors affect its demand, supply, the workforce and changes in the demand and supply. The labor market also considers the legal requirements, the tax and the age that ought to supply the service.
The organization’s ability to pay its workers is one factor that affects the wage rate in any organization setup. Companies that make high profits have the ability to pay its workers well compared to those that are small with a low profit margin and the non-profit making organizations. Supply and demand for the labor affects the wage rate in the market. If the demand for skilled labor is more and the supply is low, then its price will be high and vice versa. The prevailing market rate, also known as the comparative wage or the ongoing wage rate will determine the wage that a company will give to its laborers. The company will tend to offer a wage similar to that offered by others in the same market. The skill level in the market is fast going down due to technology, therefore, the little available skilled labor will attract a high wage rate. In addition, the degree of competition will also affect the wage rate in the market. Companies will raise their wage rate to enable them attract competent employees. Finally, the productivity of the individual laborer will define his wage.
Skilled laborers receive more wages than their semi-skilled and non-skilled counterparts do. The demand for labor is in most cases based on the wage rate and the marginal revenue product. This wage rate is critical to labor’s movement along the demand curve. However, the wage is not the only determinant of demand for labor. The availability of substitutes like technology, will affect the level of demand for labor that a company will need at any given time. The proportion of labor cost is incorporated in the total cost. If the labor cost is very expensive then the company will employ few people to keep their profit margin at par. The period is also an important factor that will influence the demand for labor, work that extends into long days will not attract more labor as compared to work that is urgent and required in a short period. The most important factor is the productivity of the labor. Companies will seek to hire competent staff that is highly productive.
Similarly, the existing market wage rate also determines the supply of labor. When the wage rate is high, the labor suppliers will tend to be more available to satisfy the needed demand. They will be willing to stay long hours since, in the end, the reward is very appealing. On the other hand, this is not the only determinant of supply. Psychological reward that the laborer will get from the occupation is also a determinant. Occupations with good working environment like teaching will attract more labor. More people will be willing to provide the required labor at the prevailing market wage rate. The preferences of the employee will affect the supply, since everyone has his own choice of what job he wants to do, the supply will be more on the market where more people prefer to work. The benefits that accrue to the laborer will determine his/her interest in the market. Market structures where the staff member gains more benefit will have a high supply of labor.
The demand and supply for labor changes with different market forces. However, as discussed earlier, the main determinant is wage. Contrary to this, other non-wage factors influence the change in demand and supply of labor. The change in technology always increases the labor productivity and introduces a cheap way of production. This is through machines that are fast and are cost effective. The economic conditions of the country at that moment will affect the change in wage rate. A slow growing economy negatively affects the labor market. While a fast-growing economy will have a positive implication to the labor market, if the laborers foresee that a certain industry will require their services, they will sit back and wait for that hoping to maximize on it. The demand for the product will also make a positive or a negative shift in the demand and supply of labor. Finally, when an industry expands, it is common that their demand for employees will go up, thus the supply will also increase.
The labor market is a very wide market with all factors similar to the other market for goods and services. It has competition, the pricing mechanisms, and determinants of both the supply and demand and the rules that govern the market. This market is fast growing and in the future, employers will not have a great deal finding employee, and the laborers will not look hard and long to find work that pays their expected wage rate. Most economies in the world today are keeping a close check on this market’s operations.
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