Explain the main factors, which determine the wage rate in a competitive Labour Market.
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Q. Explain the main factors, which determine the wage rate in a competitive Labour Market. Wages refers to the total package, cash plus benefits, given as a reward per time period to anyone who is employed by someone else. This encloses everyone from Doctors right down the line to waste disposal persons. Wage differentials or differences may therefore be much wider than a comparison of pay rates may suggest. Wages or net rewards from employment per time period, are a reward paid to the factor of production, labour. They are the price to secure quantity of labour (hours worked). There are two elements to the price of labour, the price of one kind of labour relative to another e.g. postman with respects to a clerk, and there is the real price of labour (if wages have gone up 10% compared to some earlier period but inflation has only gone up by 3% then real wages have increased relative to that base period) A person's wages can be known as their income. Income is the amount of money received by a household over a period of time. This income may come from employment, self-employment, dividends, rent or a variety of other sources Income distribution is the way in which total income is shared out between households. ...read more.
The demand curve for labour shows how many workers will be hired at any given rate over a particular time period. If the wage rate is high the company will be unable to afford to employ many workers however if the wage rate is low there can be many people employed. So the demand curve for labour is a down ward sloping due to the law of diminishing returns. This is explained using the following example. A factory is designed to hold 500 workers for instance is unlikely to be very productive if only one worker is employed. But there will come a point when output per worker will start to fall. There is an optimum level of production, which is most productively efficient. Eventually, if enough workers are employed, total output will start to fall. Imagine 10 000 workers trying to work in a factory designed for 500. The workers will get in each other's way and result in less output than with a smaller number of workers. This general pattern is known as the law of diminishing returns. The law of diminishing returns can be explained more formally using the concepts of total. ...read more.
Supply can also be sub grouped in to Inelastic Supply and Elastic Supply. Price elasticity of supply measures the responsiveness of supply to a given change in price. Supply and demand When demand and supply are put together we can determine the equilibrium price of a good or service i.e. (the wage of a person) Price Supply Equilibrium Price Demand Quantity Demand/Supply The above method is how wages are determine in simple terms the is a better-suited graph to explain the demand for labour. It also matters what type of supply is being taken in to account for examples doctors would have high demand and low supply said to be inelastic in supply compared to teachers who are said to have relatively low demand in N.Ireland and supply is high they are said to have elastic supply these can be represented in graphs below. E.g. Doctor E.g. Teacher Why the wage rates differ. Each worker is a unique factor of production, processing a unique set of employment characteristics such as * Age- whether young, middle aged or old * Sex- whether male or female * Ethnic Background * Education, training and work experience * Ability to perform tasks- including how hard they are prepared to work, their strengths and their manual or mental dexterity. A job where labour is in high demand but in short supply will pay higher wages. ...read more.
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