LESSON 5

5.1       Labour demand/demand for labour

Labour demand refers to the number of workers that employers are willing to employ (offer jobs) and retain in employment at a given wage rate in a given period of time.

Note: Unlike demand for a commodity, the demand for labour and all factors of production is derived demand, being majorly determined by the demand for final products which that labour can produce.

5.2       Factors that influence/determine labour demand in an economy

• The level of demand for products labour produces. More demand for the products leads to increased demand for labour to produce the products. However, a decrease in demand for products leads to lower demand for labour.
• Level of wages. High level of wages makes the labour more expensive to pay and hence reducing labour demand while low level of wages makes labour cheap to employers and thus increased labour demand.
• Level of skills of labour. Higher level of skills possessed by labour makes it more attractive to employers and this leads to higher demand for labour while lower skills possessed discourages employers, hence lower demand for labour.
• The proportion of labour costs to total costs of production/of the firm. With labour costs accounting for a small proportion of total costs, the demand for labour increases because labour is cheap to employ. However, with labour accounts for a big proportion of total costs, its demand reduces—since it becomes expensive.
• The degree of substitution of labour with other factors/ level of substitutability of labour. Labour being easily substituted with other factors of production especially capital, its demand reduces unlike labour which is not easily substituted with other factors.
• Availability of co-operant factors which compliment labour/cost of co-operant factors such as capital. With co-operant factors of production readily available, the demand for labour increases while inadequate co-operant factors limit the demand for labour.
• The marginal productivity of labour (productivity/efficiency of labour). Labour with high marginal productivity (more additional output per unit) has higher demand while labour with low marginal productivity has lower demand.
• The degree of complementarity of labour with other factors. With high degree of complementarity, demand for labour increases-since it is highly needed to work alongside others factors. However low level of complementarity of labour with other factors reduces demand for labour.
• The elasticity of supply of labour. Labour with inelastic supply has higher demand since such labour is difficult to get while labour with elastic supply has low demand.

 5.3       SUPPLY OF LABOUR

Supply of labour is the number of people in the working age group that are willing and able to work at a given wage rate in a given period of time.

Or Labour supply refers to the number of hours of work offered by a labourer at a given wage rate.

5.4       Determinants of labour supply

• Wage rate/level. A high/ better wage rate induces/encourages many workers to supply more effort hence increasing labour supply while a low/ reduced wage rate discourages many people from working, leading to reduced/low labour supply. However, at very high wages the supply of labour reduces since leisure becomes more attractive (back ward bending supply curve of labour).
• The population size and proportion of working population to total population. A big size of the population and a high proportion of the working population imply increased labour supply-since more people are available to do work and vice versa.
• Sex composition of the population. Generally, a population with a large number of women is likely to have low labour supply-since females are at times away from work (such as during maternity leaves) while that population with few females is likely to have high labour supply.
• The working conditions of labour. Favourable working conditions such as higher job security, more allowances (housing, medical allowance, leisure facilities) to workers attract more people to offer labour hence higher labour supply while unfavourable working conditions such as limited allowances to workers limit labour supply.
• Immigration and emigration rate. Immigration involves people entering the country while emigration involves people leaving the country. Higher rate of immigration (and lower rate of emigration) leads to more labour supply because more people are available to do work while lower rate of immigration (and increased emigration rate) leads to reduced labour supply.
• People’s attitude towards work. Negative attitudes towards work and many people unwilling to work lead to low labour supply. However positive attitudes towards work and more people willing to work lead to higher labour supply.
• Level of education and training/level of skills. This mainly determines the supply of skilled labour. With more people attaining a high level of education and training the supply of skilled labour increases, since more people can do the technical work. However, with the majority having less skill/training, the supply of technical labour is low.
• Age structure of the population. With most people falling in the working age bracket (15-64 years), the supply of labour increases because the majority are able to work While labour supply is low with most people falling in young and old age groups.
• The nature of work. With most jobs being risky, dangerous and unpleasant and therefore discouraging many people from joining them leads to less labour supply, while with most jobs being pleasant and thus attracting   more people labour supply is high/increases.
• The demand for labour. High demand for labour leads to more supply of labour since there are more opportunities for work while low demand for labour reduces labour supply due to few opportunities available.
• The retirement age. A lower retirement age leads to low supply of labour since more aged people are not allowed to be in active service while a higher retirement age leads to more supply of labour.
• Study duration/ length of training period. A short training period and a low average age of leaving school leads to higher the supply of labour because more people are able participate in work early enough. However, a long training period, prevents many people from joining working class early enough and hence low supply of labour.
• Minimum working age in the country. A high minimum working age leads to low supply of labour since many young people are not allowed to work by law while a lower minimum working age leads to high supply of labour since many people are able to work.
• The degree of mobility of labour (both geographically and occupationally). A high level/degree of labour mobility leads to higher supply of labour since many people are able to move from place to place or job to job. However low level of labour mobility reduces supply of labour because few people are able to take up jobs in various regions or occupations.