Labor Market

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Labor Market

Labor market is the point where wage rates are determined, employers meet laborers and the laborers find work that is offering their expected wage. The labor market can local, regional or even international depending on the geographical location of the laborers, the employers and where the job is available. The labor market can also refer to as the resource market since at this point; the demand for labor meets the supply of labor. The forces of demand and supply are used to explore the demand for labor and the supply of the labor. Various factors affect the demand for labor, supply, and the workforce, changes in the demand and supply curves of labor. The labor market also considers the legal requirements for labor, the tax and the age that ought to supply labor.

The organizations ability to pay its workers is one factor that affects the wage rate in any organization se up. Companies that make high profit have the ability to pay its labors 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 labor market. if the demand for labor is more and the supply of this skilled labor is low, then the price for this labor will be high and vice versa. The prevailing market rate also known as 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 labor market. Companies will raise their wage rate to enable them attract labors. Finally, the productivity of the individual laborer will define his wage.

Skilled laborers receive more wages than the semi-skilled and non-skilled laborers. The demand for labor is in most cases based on the wage rate and the marginal revenue product of labor. This wage rate is critical to the movement along the demand curve for labor. However, the wage is not the only determinant of demand for labor. The availability of substitutes like technology, will affect the level of demand of labor that a company will need at any given time. The proportion of labor cost occupies in the total cost. If the labor cost is very expensive then the company will employ less labor to be able to keep their profit margin at bar. 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. Most importantly is the productivity of the labor. More companies will go for labor that is more productive than that which is les 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 supply the needed workforce. 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 of labor; psychological reward that the laborer will get from the occupation is 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 laborer will affect the supply, since each and 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 in. the benefits that accrue to the laborer will determine his interest in the market. Market structures where the laborer gain more benefit will have a high supply of labor.

The demand and supply of labor changes, 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 that moment will affect the change in wage rate. A slowly growing economy implicates negatively to the labor market. While a fast, growing economy will have a positive implication to the labor market. If the laborers foresee that a certain labor industry will require their labor, 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 labor 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.