Understanding Labor Markets: Supply, Demand, and Unemployment
Labor Market Dynamics
Work and Wages
Work, both physical and intellectual, contributes to the production of goods and services. Wages compensate workers for this contribution. In the labor market, companies demand workers, while individuals aged 16 or older (the working-age population) supply labor.
Working Population
The working population consists of people of working age who are willing and able to work. This includes both the employed and unemployed.
- Employed Population: Individuals with paid employment or self-employment.
- Unemployed Population: Individuals actively seeking work but unable to find it.
The inactive population includes those of working age who are not seeking employment.
Supply and Demand of Labor
While average wage levels exist, we assume a perfectly competitive labor market where neither workers nor employers can significantly influence wages. Jobs are similar, and there are minimal barriers to changing jobs.
Labor Supply
The amount of labor offered depends on the workforce size and the number of hours each person is willing to work, influenced by factors like wages.
Labor Demand
Companies hire workers when the revenue generated by their work exceeds the wages paid. Demand depends on wages and worker productivity. Higher wages can lead to reduced labor demand.
Equilibrium Wage
The intersection of labor supply and demand curves determines the equilibrium wage, where the number of workers willing to work equals the number employers want to hire.
Employment Contract
An employment contract is an agreement where a person performs work under another’s direction in exchange for payment.
Marginal Productivity of Labor
Wages are influenced by a worker’s marginal productivity—their contribution to production.
Wages and Productivity Improvement
Labor productivity depends on human capital, production resources, and technological advancements. Improved training, equipment, and technology have boosted productivity in developed countries.
Imperfections in the Labor Market
determination of wages depends on the interplay of supply and demand.However, in actual labor markets are influenced by other factors that away from the model of perfect competition: – Both business and unions influence wages through collective bargaining. The State also influences – Work is not a homogeneous product, or jobs and not all workers are equal, some of inequality is explained by the marginal productivity theory, but in some cases is of dubious justification, these are some factors that determine wage inequality: · Differences compensatory wages of workers with night jobs, unpleasant or dangerous often higher than those in other jobs requiring similar qualifications but have no such drawbacks Differences talent and skills particularly valued by society The difference in human capital is one more person trained and experienced Sa efficiency wages are a type of incentives used by some companies to motivate employees, increase their productivity-discriminatory basis to any level of studies, men get higher wages. This has no justification whatsoever and is due to the persistence of practices of the past which today have no reason for the legislation of some countries or simply social harm human capital training and experience of an individual company or a country is its Human Capital unemployed or unemployed population is made up of people who are able to work and seek employment, but does not include the measurement of unemployment: The Labour Force Survey (LFS). The conducted quarterly by the National Institute of Statistics (INE) between the population aged 16 years or more is available to work and can not find work .- Pa ro another way of measuring registered unemployment is performed monthly National Employment Institute ( INEM). The INEM takes into account only those unemployed who are registered in registered unemployment offices therefore not counted. Activity rates and unemployment T loop of activity: is the proportion or percentage of population with respect to the total working age population work. Is found by dividing the labor force (PA) among the total population of 16 or more years (PT): TA = PA / PT * 100 Unemployment rate: The proportion or percentage of unemployed in relation to the workforce. Is found by dividing the unemployed population (PP) between the active (PA) TP = PP / PA * 100 The causes of unemployment Economists do not agree to identify the main causes of unemployment, according to neoclassical theory if the labor market operates freely and wages were flexible up and down would not stop and if he had a serious oversupply of workers that would cause the market mechanism adjusted wages down by lowering wages as companies hire more workers and unemployment desapareceríaRigidez in wages which prevents the adjustment of supply and demand for unions seeking to improve working conditions for workers, another cause which contributes to the rigidity of wages is the existence of the minimum wage set by the state to ensure people live in dignity and to prevent some employerspay their employees wages abusive.