Supply and Demand of Labour – SS2 Economics Lesson Note (Second Term)

Supply of labour is the total number of people of working age offered for employment at a particular time and a given wage rate. Demand for labour is the total number of workers an employer is willing and ready to hire at the same time and wage rate. Together, the two forces help determine wages in a market economy.

Behavioural objectives

By the end of the lesson, students should be able to:

1. Define supply of labour and demand for labour.
2. State the factors that affect the supply of and demand for labour.
3. Distinguish between nominal wages and real wages.
4. Explain how wages are determined and why they vary between occupations.
5. Describe the types, causes, consequences and solutions of unemployment.
6. State the objectives and weapons of a trade union.

What is supply of labour?

Supply of labour may be defined as the total number of people of working age offered for employment at a particular time and a given wage rate. It also relates to the quantity of labour.

Factors affecting supply of labour

1. The size of population and population growth.
2. The age structure of the population.
3. The official school leaving age.
4. Official age of entry and retirement.
5. The number of people who pursue full-time education beyond the normal school leaving age.
6. The number of married women who take up paid employment.
7. The number of people of working age in the country who are disabled or incapacitated.
8. The number of able-bodied people in the country who are not willing to work.
9. The number of working hours per week.
10. The rate of remuneration or the wage rate.

What is demand for labour?

Demand for labour may be defined as the total number of workers an employer is willing and ready to employ or hire at a particular time and a given wage rate.

The demand for labour relates to the quantity of human effort required by entrepreneurs for carrying out production. It is a derived demand.

Factors influencing demand for labour

1. The number of industries in a country.
2. The nature of industries.
3. The quantity of other factors of production available.
4. The price of labour or the wage rate.
5. The state of employment in the economy.
6. The demand for labour output and the price level within the economy.

What are wages?

Wages refer to payment to labour on a daily or weekly basis. Salaries refer to the payment made to labour every month.

Types of wages

1. Nominal wages: the actual money paid for labour in a particular period.
2. Real wages: the purchasing power of labour. Real wages refer to wages in terms of the goods and services the wages can buy.

How are wages determined?

The forces of demand and supply in a market economy

The wages of labour in a market economy can be determined through the forces of demand and supply. The wage rate in a competitive labour market can be determined in the following manner:

1. When the supply of labour exceeds the demand, the wage rate will fall.
2. When the demand for labour exceeds the supply, the wage rate will rise.
3. When the demand for labour equals the supply, the wage rate will be favourable to both the employer and the employee.

Government activities and policies

Government institutions and wage commissions set up by the government help in determining wages, especially in public services. In fixing wages, the government agency or wage commission considers the following factors:

1. Cost of living: the higher the cost of living, the higher wages are likely to be.
2. Level of productivity: the greater the level of production in the country, the higher the wage rate.
3. Type of occupation: the wage structure varies from one occupation to another.

What causes variation in wages?

1. Differences in cost of training.
2. Differences in period of training.
3. Skill needed at work.
4. The bargaining power of the trade union.
5. Degree of risk involved in an occupation.
6. The prestige attached to an occupation.

What is unemployment?

Unemployment is a situation in which persons of working age, able and willing to work, are unable to find paid employment.

Unemployment of labour occurs in the economy if there are people who are capable of working and who are qualified by age, law, custom and other factors to work, but who cannot find jobs.

Types of unemployment

1. Structural unemployment: This arises from changes in the pattern of demand for certain commodities. If the demand is low, industries may reduce their workforce, and this eventually results in structural unemployment.
2. Seasonal unemployment: This occurs in industries whose production is subject to seasonal variations.
3. Voluntary unemployment: This arises from the deliberate refusal of labour to work, even though employment opportunities exist (and such people are fit to work).
4. Technological unemployment: This results when industries introduce capital-intensive techniques of production.
5. Frictional unemployment: This is associated with switching from one job to another. It occurs in the process of searching for new jobs, and the time it takes to find a new job causes it.
6. Casual unemployment: This usually occurs with jobs of an unsettled nature or jobs which are not permanent.
7. Residual unemployment: This includes all those who cannot work due to physical or mental disabilities.
8. Cyclical unemployment: This occurs during the depression or recession stage of the business or trade cycle.
9. Disguised unemployment: This occurs if workers are not used efficiently in production or if they are underemployed.

Causes of unemployment

1. Economic recession.
2. Changes in the pattern of demand.
3. Seasonal changes in agricultural and other forms of production.
4. Economic reform policies.
5. Inadequate educational curricula and poor educational planning.
6. Use of capital-intensive methods of production.
7. Rapid population growth and slow rate of economic growth.
8. Physical and mental disability.

Consequences of unemployment

1. Increase in crime rate.
2. Threat to peace and stability.
3. Waste of human resources.
4. High rate of dependency.
5. Migration.

Solutions to problems of unemployment

1. Industrialisation.
2. Population control.
3. Redesigning the educational system.
4. Proper development plans.
5. Provision of social amenities.

What is a trade union?

A trade union is an association of workers formed to enable the members to take collective, rather than individual, action against their employers in matters relating to their welfare and conditions of work. Examples are the Academic Staff Union of Universities (ASUU) and the National Union of Petroleum and Natural Gas Workers (NUPENG).

Objectives of a trade union

1. To secure good wages for members.
2. To safeguard the interests of members.
3. To help in policy formulation.
4. To regulate the entry qualifications into the various professions.
5. To secure job security.
6. To secure better working conditions.

Weapons or instruments of a trade union

1. Negotiation or collective bargaining with employers: Collective bargaining is a process by which a trade union and the management try to resolve their differences through joint negotiations.
2. Threat to strike: The trade union may give an ultimatum to the employer or the management, informing them of an impending strike if their demands are not met within a given period.
3. Work to rule: The workers deliberately slow down operations to press their demands for improved conditions of service.
4. Picket lines: The workers refuse to work, parade and sometimes block the entrance to the plant or factory.
5. Strike: The workers refuse to work and stay away completely from their place of work until their demands are met.

Evaluation

1. Define supply of labour and demand for labour.
2. State four factors that affect the supply of labour.
3. Distinguish between nominal wages and real wages.
4. List four types of unemployment and explain any two of them.
5. State three weapons of a trade union.

Assignment

1. Explain the factors which influence the level of employment in your country.
2. Distinguish between labour and labour force.
3. State four reasons for differences in earnings among workers.