Demand & Supply of Labour
Economics Extended Response
Demand & Supply of Labour
Outline the main factors that influence the demand and supply of labour for a firm. Explain how the interaction of the demand and supply of labour determines labour market outcomes. Analyse how changes in consumer tastes, productivity levels, workforce participation rates and the ageing of the population might affect the labour market.
The labour market is one of the more sophisticated elements of the market economy and having an understanding of its interaction with the operation of the market economy and the economic problem is of paramount concern. The labour market refers to the interaction individuals seeking employment have with employers who want to obtain the most appropriate labour skills for their production process.
There are three basic components that will influence the demand of labour in the market:
• Fluctuations in the business cycle and the economic climate will result in changes in the labour demanded i.e. higher rates of economic growth in an industry are often associated with declining levels of unemployment. However in saying this, changes in economic activity may not always result in immediate changes to labour demand; there is a time lag between firms observing increased demand and raising their demand. In a real world situation such as the recent economic crisis, the slowdown of the Australian economy that began in early 2008 only began to affect unemployment levels at the end of the year; this is because firms are hesitant to immediately retrench their employees, they will only do this if it is clear that the demand for labour has declined.
• As the demand for labour is derived from consumer demand for goods and services, any changes in the patterns of consumer demand will result in changing patterns of labour demand. A change in the allocation of labour between industries is a result of changing consumer tastes and preferences for different goods and services. An example
Demand & Supply of Labour
Outline the main factors that influence the demand and supply of labour for a firm. Explain how the interaction of the demand and supply of labour determines labour market outcomes. Analyse how changes in consumer tastes, productivity levels, workforce participation rates and the ageing of the population might affect the labour market.
The labour market is one of the more sophisticated elements of the market economy and having an understanding of its interaction with the operation of the market economy and the economic problem is of paramount concern. The labour market refers to the interaction individuals seeking employment have with employers who want to obtain the most appropriate labour skills for their production process.
There are three basic components that will influence the demand of labour in the market:
• Fluctuations in the business cycle and the economic climate will result in changes in the labour demanded i.e. higher rates of economic growth in an industry are often associated with declining levels of unemployment. However in saying this, changes in economic activity may not always result in immediate changes to labour demand; there is a time lag between firms observing increased demand and raising their demand. In a real world situation such as the recent economic crisis, the slowdown of the Australian economy that began in early 2008 only began to affect unemployment levels at the end of the year; this is because firms are hesitant to immediately retrench their employees, they will only do this if it is clear that the demand for labour has declined.
• As the demand for labour is derived from consumer demand for goods and services, any changes in the patterns of consumer demand will result in changing patterns of labour demand. A change in the allocation of labour between industries is a result of changing consumer tastes and preferences for different goods and services. An example