Labor Costs & Unionization

• Labour market is composed of both households which are sellers of labour and firms which are buyers of labour
• Workers supply their labour and firms demand it for production

Importance of Labour

• Labour costs are a significant business expense
• Firms can increase profits by lowering labour costs
• Labour costs are lowered by increasing the productivity of workers or by reducing wages

Quality and Quantity of labour

• The quality of labour refers to the skills, knowledge, and expertise of the workforce
• Higher labour quality leads to greater potential productivity for businesses
• Tech companies such as Google, Facebook, and Microsoft are located near universities in Paris to access highly skilled workers
• Quantity of labour refers to the number of available workers
• Multinational companies set up production in countries like Bangladesh or Vietnam because of the availability of a large labour force at low wages

Impact of Education and Training on Labour

• Education occurs in schools and universities, funded by the government or private firms
• Training, undertaken by firms, shapes human capital and the quality of labour
• Skilled workers drive innovation, creating a competitive advantage
• Reduced training costs in countries like Sweden and Denmark are benefits because university education is free for specialist workers
• Ireland's investment in science education has attracted pharmaceutical companies like Pfizer and Abbott, they have access to specialized labour for research and production
• Some countries prioritize education less, putting the burden on education and training on businesses
• Training workers in specific skills creates higher costs for firms
• Businesses like Tesla value training programs to nurture employee expertise
• Businesses focused on short-term profits may not prioritize investing in education or training

Demand for Labour as Derived Demand

• The level of labour depends on the demand for goods and services
• When demand for goods and services increases, labour demand increases, and vice versa
• As the demand for technology devices increases, firms require more skilled labour to design, manufacture, and market these products

Demand Curve for Labour

• An inverse relationship exists between wage rate and the quantity of labour demanded
• Firms demand more labour as the wage rate decreases resulting in a downward sloping demand curve
• If the wage rate increases from (W1 to W2), then the demand for labour decreases from (Q1 to Q2)
• If the wage rate is the only factor, there will be a movement along the demand curve
• A range of factors can shift the entire demand curve for labour to the left or right
• When the demand curve for labour shifts to the left, it indicates that fewer workers are employed at each wage rate
• When the demand curve for labour shifts to the right, more workers are employed at each wage rate

Factors that Influence Demand of Labour

• Influencing factors include the price of the product, the demand for the product, ability to substitute capital (machinery) and the productivity of labour

Example: An Increase in Demand for Labour

• Increased demand for online shopping has led to increased demand for delivery drivers

Example: A Decrease in Demand for Labour

• Clothing manufacturers have been investing in automated production to reduce labour costs

Supply Curve for labour

• This shows the relationship between wage rate and number of workers willing to work in a given occupation
• A higher wage incentivizes more labour to be supplied upward sloping curve

Diagram Analysis

• As hourly wage rates increase from W1 to W2 there is an incentive for workers to work from Q1 to Q2

Factors that Influence Supply of Labour

• Population size, age distribution of population, migration, participation, school-leaving age, skills/qualifications and mobility of labour

Example: An increase/decrease in Supply

• India's growing population has led to more available workers
• The UK raising the school leaving age decreased supply from S to S2

Wage Determination

• Labour Market Equilibrium occurs when DL demands equals the supply created by SL
• In this the DL is the demands of firms and Sl is the labour workers supply
• Individual firms are price takers and must accept the market wage and being paid by the industrys
• Lower offering wages means they struggle to recruit new workers
• Higher wages they would be excessing workers attempting to apply

Effect of a raise in Labour

• Shifting the curve with labour shifting to the right causes both the equilibrium wage rate and labour employed to rise i.e Al programmers
• A fall in the supply of labour shifts it to the left causing a rise in wage rate and labour being employed

Trade Unions

• It is a group that represents workers interests when negotiating with firm management or owners
• interests include: Wage, non-wage employment, health, safety and worker exploitation reduction Unions form from a number of specific industries e.g. Airline Pilots union
• Where no specialist union lies most countries have a range of general unions
• A union represents across the public sector like in education+health and local government for those working in it

Types of Unions

Work of Unions

• Monthly membership fees for a subscription
• Union membership includes: Bargaining, job-specific training, Legal Representation, discounts on goods
• Collective bargaining to force governments/employers to engage with them

Industrial actions include

• Strikes, overtime bans, work to rule, Go-slows

Impact of Unions

• In the intervention shifts the equilibrium wages for an employee with the power to demand increasing through negotiating
• Collective bargains: in wages, hours worked the contractual terms

Union Negotiations

• acceptable high levels, inflations-linked pay rises and improved working conditions
• Protecting the worker and minimizing job losses with resettlement/termination packages and influencing policy for the members to benefit strikes