Active Vocabulary
Key terms: labour market; labour services; demand for labour; labour supply; employment,wages; cost of labour; productivity; workforce; price; output; job opportunity, working age, staff; level of production; internal labour market; external labour market; work experience; educational background; national labour market; local labour market.
Other words and expressions: market; good; commodity; service; buyer; seller; demander;supplier; worker; employer; benefit; condition; retirement; legislation; economic downturn; hiring; re-hiring; training; turnover; skill; ability; work attitude; motivation; complexity of work; working environment; promotional opportunities; employment relations; job requirement.
Buyers and Sellers of Labour Interact in Labour Markets
A market exists whenever there is a good or service for which there are both buyers (demanders) and sellers (suppliers). In the labour market, labour services are exchanged and those negotiations occurring between buyers and sellers partly determine the placement of workers in jobs with specified wages, benefits, and conditions of employment.
The demand for labour comes from employers and is derived from their need to employ workers to produce goods and services. Firms choose their staffing levels according to a number of factors, including: the cost of labour; the productivity of the workforce; the current and anticipated level of production; and the price that the firm can command for its output. Job opportunities arise when firms expand their operations and when firms replace employees who are leaving their jobs, such as retirees.
In the most basic terms, the supply of labour refers to the number of people currently working or actively seeking employment. The size of the labour supply is determined by the number of individuals of working age (the working-age population) as well as the proportion of the working-age population that wishes to work. Other aspects of labour supply include the hours that staff work, the effort put forth by employees, and the skills possessed by the workforce. Thus, labour supply is determined by numerous factors including: the age distribution of the population; retirement behaviour; migration patterns; education and training decisions; fertility rates; the state of the economy; and individuals‘ decisions concerning the allocation of time between work activities and leisure.
Uniqueness of Labour Markets
While the labour market is often described in terms of demand and supply components, there are many unique features of the labour market that constrain or limit the applicability of this theoretical framework. For example, basic economic supply and demand theory predicts that if the amount of something supplied exceeds the amount of something demanded, then its price should fall. Furthermore, its price is predicted to fall until the surplus (i.e., excess supply) is eliminated.
In a market for a commodity such as wheat, it seems reasonable that an excess supply results in a drop in its price as sellers underbid each other in order to attract buyers. Buyers, in turn, would probably choose to deal with the lowest-priced seller as long as there are no meaningful quality differences across sellers. In the labour market, however, excess supply does not typically result in price reduction (i.e., drop in the wage rate). Similarly, excess demand does not necessarily lead to a rise in price. Some of the major reasons for these deviations from straightforward supply and demand economics are outlined below.
Institutional Forces
Institutional forces are the effects that organizations such as corporations, governments, and unions have on the labour market. These forces can be codified as formal rules (e.g., legislation) or exist as informal practices (e.g., behaviours). Irrespective of the particular form, institutional forces can have important impacts on labour market outcomes.
Labour market legislation is an obvious impediment to the unfettered operation of supply and demand forces.
Institutions introduce rules and regulations that impact the workings of the labour market. For example, hiring practices within the firm may determine who can compete for particular jobs. As a result, an important distinction may exist between the internal labour
market (i.e., workers within the firm) and the external labour market (i.e., workers outside of the firm). Workers inside internal labour markets are, to a certain extent, buffered from the supply and demand pressures of the external labour market.
Long-Term Nature of the Employment Contract
Another significant feature of the labour market is the relatively long-term nature of the employment relationship. That is, other economic transactions are of a short-term nature in comparison to the relationship that develops between a worker and a firm. One important implication of the long-term relationship between workers and firms is that wages and employment levels are less-responsive to supply and demand forces than they otherwise would be. For example, firms may choose to retain workers during an economic downturn in order to avoid the costs or re-hiring or training when the economy picks up. Similarly, firms may choose not to reduce their workers‘ wages during a period of relatively high unemployment due to concerns that wage reductions may have long-term negative impacts on the morale, productivity, and turnover of their staff.
Unique Workers and Unique Jobs
Another distinguishing feature of the labour market is the diversity in the characteristics of the service being traded. Workers differ along numerous dimensions, including skills, abilities, work experience, educational background, work attitudes and motivations. Similarly, employers and the jobs they offer differ according to such attributes as the nature and complexity of work, fringe benefits, working environment, promotional opportunities, and quality of employment relations. Clearly, it is challenging to describe something as a ―market‖ when, to some extent, each worker and job is unique.
The uniqueness of workers and jobs has two main implications. First, labour market exchanges are dependent on numerous factors in addition to price. For example, workers may rationally ―trade-off‖ a high wage for job security or for a pleasant working environment. Second, it is important for both labour demanders and suppliers to acquire an adequate amount of information about the other party before transacting in the labour market.
Multiplicity of Markets
So far, the term ―labour market‖ has been used as if there were only one such market.
In reality, however, the labour market is comprised of numerous individual sub-markets. The two most important ways in which the labour market can be subdivided are according to geographic location and occupation.
If firms and workers are searching for each other throughout a country, the market is described as the national labour market. The search for highly skilled technical and professional occupations is often carried out on a national basis. The research director of a major pharmaceutical firm and the chief executive officer of a major charitable association are likely examples of positions in the national labour market. For some occupations, such as professional athlete or university professor, the labour market may even be international in scope. On the other hand, if the area of search is within the local community, the market is described as the local labour market. Real estate agents and taxi drivers are examples of occupations where job search and recruitment typically occur within a local labour market.
When analyzing wage and employment opportunities, another important dimension is the occupation under examination. For example, supply and demand conditions likely differ across the following occupations: teaching, truck driving, and computer programming. Mobility between occupations is limited by some fairly obvious factors. First, occupational licenses limit one‘s ability to work in a given occupation (e.g., teachers need B. Ed. degrees
to teach at public schools in Ontario). And second, different skill sets and work experience are required for satisfactory job performance across occupations. While the flexibility of workers to change employers is often highlighted in recent publications, workers still tend to have significant loyalty to their chosen occupations. In fact, some argue that ―while workers were much more likely to change employers in the 1980s and 1990s, they were more likely to keep their occupation.‖
The boundaries between individual labour markets are, at times, fairly porous. This means that workers may flow from one labour market to another. Continuing with the examples from above, it could be that a truck driver returns to school in order to become a teacher and thus forms part of the labour supply in the teaching profession. Or, a real estate agent abandons a local labour market search and instead moves across the country in order to secure employment. The amount of mobility existing across labour markets depends upon such factors as: the degree of similarities between occupations (in terms of job requirements and requisite skills); the costs of job search; the geographic disparities between regions; and demographic characteristics that may affect one‘s decision to move a significant distance
(e.g., the presence of children, a working spouse, etc.). Language notes:
employment - праця; робота; служба; робота (за наймом); зайнятість; наймання; працевлаштування; виконання обов'язків, справи тощо; службове й соціальне становище особи, яка має місце роботи; прийняття кого-небудь на роботу за визначену оплату (remuneration);
labour supply - наявність працівників відповідних спеціальностей; наявність працівників відповідної кваліфікації; пропозиція праці; пропозиція на ринку праці; наявність робочої сили; наявність спеціалістів;
output - випуск; продукція; обсяг виробництва; товари і послуги, виготовлені за допомогою ресурсів у формі капіталу, праці (labour), сировини тощо, або товари і послуги, які використовуються для виготовлення інших товарів і послуг;
specified wages - індивідуально визначена заробітна плата;
staffing level - рівень заповнення штатного розпису; укомплектованість штатів; укомплектованість кадрами; working age — працездатний вік.
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Linking words and phrases: whenever; including; as well as; as long as; such as; while;thus; furthermore; in turn; however; similarly; i.e.; e.g.; for example; as a result; otherwise; to a certain extent; to some extent; so far; on the other hand; first; and second.
