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Labour is a derived demand because the demand for labour is a result of the demand for goods and services.

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Introduction

Economics Essay 2 By Debbie Guo Mr Millward Labour is a derived demand because the demand for labour is a result of the demand for goods and services. What consumers are directly demanding are actually goods and services, and labour is necessary to produce these goods and services. There are many factors that determine how much labour a firm or industry will demand at any particular price, and how it responds to changing economic conditions. These include the type of production a firm is involved in, the level of economic activity, the pattern of consumer demand and the productivity of labour. The type of production refers to the types of goods or services produced in the firm or industry. Some types of production are capital intensive while others are labour intensive. Demand for labour tends to be very low when productions are capital intensive, as labour is not such an important factor of production in these industries. An example is the printing industry, where machines and computers are the main factors of production. In labour intensive types of production, demand for labour is very high since labour is a very important factor of production in these industries. An example of a labour intensive industry would be the clothing industry in Asia, where factories of large clothing companies such as Nike are based. Production of clothes is essentially labour oriented in these companies, and therefore have high demand for labour. ...read more.

Middle

The use of a company car and employer sponsored superannuation also influences the willingness of labour one is prepared to supply to a particular firm or industry. Another important determinant of supply of labour is the number of people with the necessary skills, experience and education required to work in an industry. To acquire these skills, workers have to undertake training over a long period of time, and used up considerable effort. This limits the amount of people qualified for any specific job, and restricts the number of applicants. The more training and difficulty a worker undergoes, the more likely he or she will receive higher wages in the long run. Government policy decisions or the collective action of those providing labour within an industry also restricts the supply of labour. Even though Commonwealth and State laws are intended to prohibit restrictions on employers hiring non-union labour, trade unions are still exerting pressure on firms and industries to employ only union members. Supply of labour is restricted on the continuation of training and professional conduct in certain occupations, where professional associations such as the Law Society, the Australian Medical Association and the Institute of Engineers of Australia have imposed certain standards. The interaction of the demand and supply in labour markets in an industry or field is referred to by labour market outcomes. The most important labour market outcome is the wage rate. The wage, when used in the labour market, largely determines the size of a person's income and consequently, the standard of living and well being of that person. ...read more.

Conclusion

Enterprise bargaining was introduced as a means of determining wages in the mid 1990s. This basically ensured that workers and employers from one workplace were able to negotiate wages and conditions that were only applicable to that one enterprise. There has been a marked change in the Australian industrial relations landscape since the mid 1990s, which has essentially meant large changes in the system by which wages and working conditions are determined. This has mainly consisted of marked reductions on behalf of unions in determining wages, which has led to the primary responsibility for determining workplace matters with the employer and employee at the workplace level. Today, enterprise bargaining has become standard for the determination of wages. This move away from unionistic methods of wage determination has enjoyed both positive and negative outcomes. It has seen a move away from an equitable distribution of income within the Australian economy, as every worker in a union was guaranteed a minimum wage rate and, with it, a minimum standard of living. Restricted union influence has meant that workers with little industrial talent have seen their wages decline, while high-skilled workers have managed to negotiate very large increases in their pay. Over time, this has led to greater social inequality as the main outcome of the labour market. However, it has also rewarded individuals who have been productive, and taken its toll on unproductive workers who have relied on their unions and the productivity of other individuals within that union for their incomes. ...read more.

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