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Labour Spending
- 2. Who earns the most?
- 3. How much do they earn? Computer Engineer S$4,165 Social Worker S$2,200 General Manager S$11,071 Manufacturing Labourer S$1,073 What do others say?
- 4. Factors Affecting an Individual’s Choice of Occupation Wage factors Non-wage factors
- 7. Wage Determination “Wage, like price of product, is also determined by the Demand & Supply of labor for an occupation.”
- 8. Changes in Earnings (Wages) 1) Demand of labor changes 2) Supply of labor changes 3) Relative Bargaining power of employers and workers 4) Government Policies. Eg: National Minimum wage 5) Government polices on immigration
- 9. 6) Public Opinion: Public, for a reason will claim to increase their wages 7) Anti-discrimination policies: Men & Women should get equal pay for the same work 8) Changes in technology: New technology can replace labor supply of labor ↑ wages ↓ New technology demand of engineer, electricians, maintenance, etc wages↑
- 10. But still, differences in earning can be due to……. 1) Skills Skilled . Eg: Doctors Unskilled Eg: Cleaners 2) Gender Male Female 3) Nature of the Job Dangerous Or not 4) Private Sector Public Sector 5) Economic Sector Primary: Agriculture Secondary: Manufacturing Tertiary; Services
- 11. Definition of 'Labour Market' Definition: A labour market is the place where workers and employees interact with each other. In the labour market, employers compete to hire the best, and the workers compete for the best satisfying job. Description: A labour market in an economy functions with demand and supply of labour. In this market, labour demand is the firm's demand for labour and supply is the worker's supply of labour. The supply and demand of labour in the market is influenced by changes in the bargaining power.
- 12. Causes of shifts in labour demand curve The labour demand curve shows the value of the marginal product of labour as a function of quantity of labour hired. Using this fact, it can be seen that the following changes shift the labour demand curve:
- 13. The output price: When output price rises, the labor demand curve shifts to the right { more labor is demanded at each wage. When output price falls, less labor is demanded at each wage. Technological change causes the MPL function to change, generally to increase at each level of L. This shifts the labor demand curve to the right. However, it is also possible for technological change to shift labor demand to the left. If for instance a cheap industrial robot is installed in the production process for some industrial good, the marginal product of labor could decrease because the robot can replace labor. Such a technological change is called labor- saving. Supply of other factors The quantity available of other factors of production can affect the marginal product of labor. For example, if the supply of ladders falls, the marginal product of apple pickers will decrease.
- 14. Causes of shifts in labour Supply curve Labor Supply People face a trade-off between work and leisure. Assume that leisure is enjoyable but work is not. Leisure has a cost. This is the cost of the work given up to enjoy the leisure. So the cost of 1 hour of leisure is the person's hourly wage.
- 15. Changes in tastes (attitudes towards work): The number of women employed in paid jobs or looking for work rose from 34 percent in 1950 to 60 percent in 2000. Some of this change can be explained by changing attitudes towards women working. It was considered less acceptable for women to work outside the home in 1950 than in 2000. Changes in alternative opportunities: The supply of labor in one market depends on the wage available in other markets. If the wage in alternative markets rises, workers will switch to the alternative markets, and supply of labor in the first market will shift to the left. Immigration, population growth: As the population grows or shrinks, the labor supply will tend to shift to the right or to the left. Changes in the Prices of Related Goods and Services Several goods and services are complements of labor. If the cost of child care (a complement to work effort) falls, for example, it becomes cheaper for workers to go to work, and the supply of labor tends to increase. If recreational activities (which are a substitute for work effort) become much cheaper, individuals might choose to consume more leisure time and supply less labor.
- 16. Example Suppose apples become more popular - demand shifts to the right – price of apples rises. The marginal product of labor (MPL) has not changed. But value of marginal product of labor (P x MPL) has increased.
- 17. Trade Unions “An association representing workers interest is called a Trade Union” • General Union: Workers from different industries. • Industrial Union: Workers in a specific industry. Eg: Rail Industry, Automobile Industry, etc
- 18. Functions of Trade Unions • Collective bargaining & negotiation for -Wages Working Condition -Working hours -Holidays -Health & Safety -Overtime pay -Bonuses -Job security -Pensions -Unemployment pay -Education and Training -Fixing a national minimum wage
- 19. Advantages of Trade Unions • Increased wages for its members • Counterbalance Monopsony Power: In the face of Monopsony employers, Trades Unions can increase wages and increase employment. Monopsony employers are those who have market power in setting wages and employing workers. Traditionally, monopsonies occur when there is only 1 firm in a town, or type of employment. • Represent Workers • Productivity Deals • Important for Service Sector: Modern economies have seen a fall in trade union power. This is because of a decline in manufacturing and rise in service sector employment. Service sector jobs tend to more likely to be part time and temporary; unions are needed to protect workers in these kind of jobs.
- 20. Disadvantages of Trade Unions • Create Unemployment: If labour markets are competitive, higher wages will cause unemployment (Q3-Q2). Trades unions can cause wages to go above equilibrium through the threat of strikes e.t.c. However when the wage is above the equilibrium it will cause a fall in employment. • Ignore non Members: Trades unions only consider the needs of its members, they often ignore the plight of those excluded from the labour markets, e.g. the unemployed. • Lost Productivity: If unions go on strike and work unproductively (work to rule) it can lead to lost sales and output. Therefore their company may go out of business and be unable to employ workers at all. • Wage Inflation: If unions become too powerful they can bargain for higher wages, above the rate of inflation. If this occurs it may contribute to general inflation. Powerful trades unions were a significant cause of the UK's inflation rate of 27% in 1979.
- 21. Specialization “The process of doing something that you are best at is called SPECIALIZATION.” • A country or • A firm or • An Individual can choose to specialize
- 22. Specialization of an Individual • Also called “Division of Labor” • Each individual specialises at one task of production rather than the whole process • Hence, the output per worker increases.
- 23. Advantages • Time is saved • Worker can be trained more quickly • Worker becomes more skilled if demand is more wages will be more • Reduces the pressure of the job, because it is easy to do it
- 24. Disadvantages • Worker maybe bored • It may increase the per unit cost (cost of production) • If the worker is absent, his work can be covered by another worker • If can do only one job, then difficult to find another kind job
- 25. The Motives for • Spending • Saving • Borrowing
- 26. Why do people SPEND? Goods & Services Food Clothing Housing Electricity, Gas, Water Education Entertainment Transportation
- 27. Factors affecting Spending • Disposable Income • Wealth • Confidence • Rate of Interest • Advances in Technology
- 28. Why do people SAVE? To buy a House/ Car Retirement Children’s future – education Unexpected problems To earn interest To achieve a targeted amount Holidays
- 29. Factors affecting Savings • Income • Wealth • Rate of Interest • Consumer Confidence • Tax on Interest • Range and quality of financial institutions • Age • Social attitudes.
- 30. Why do people BORROW? To maintain their living standards To buy a House/Car/ Holiday Education For business/ Investment Personal purpose
- 31. Factors affecting Borrowing • Availability of loans • Rate of interest • Confidence • Social attitudes
- 32. Differences in Expenditure patterns of…. • Spending • Saving • Borrowing These Expenditure depends on their Incomes (Disposable Income)
- 33. Spending & Saving patterns are different because Incomes are different Tastes & Needs are different: Transport, Entertainment, Medical, Recreation, Clothing Family with or without children Teenager or old people
- 34. Average Propensity to Consume • A poor person earns $1000 Spends $900 spends 90% of his income • A rich person earns $10,000 Spends $4500 spends 45% of his income • So APC ↓ with ↑ in income APC = Consumption = 0.9 Disposable Income APC = Consumption = 0.45 Disposable Income
- 35. • A poor person earns $1000 Spends $900 & saves $100 saves 10% of his income • A rich person earns $10,000 Spends $4500 & saves $5500 saves 55% of his income • So APS ↑ with ↑ in income Average Propensity to Save APS = Savings = 0.1 Disposable Income APC = Savings = 0.55 Disposable Income
- 36. Borrowing allows you to spend more than your disposable income Difficult for the poor to borrow because they have less ability to repay It has a cost (Interest that you pay)