Labour Markets Analysis
Why Should I Care?
Labour market outcomes are one of the most important aspects of the economy, This determines whether people have jobs, and money, to pay their bills and afford a quality life style. Using supply and demand analysis, we can draw simulations and better inform policy makers of what to do when labour issues arise.
Scenario
Different countries will have different issues relative to their labour markets, depending on their population growth trends. Remember there are three ways to increase your population, either with more births, a longer life span, or immigration.
|
Country |
Qd (hr/mth) |
Qs (hr/mth) |
Gap |
Market condition |
Wage adjustment |
Labour force |
Unem-ployed |
Un. Rate |
|
StoneLand |
500 |
600 |
100 |
Surplus |
W down |
600 |
100 |
100/600 |
|
CatWorld |
890 |
760 |
-130 |
Shortage |
W up |
760 |
0 |
0/760 |
|
OrangeVila |
1,187 |
1,254 |
67 |
Surplus |
W down |
1,254 |
67 |
67/1254 |
The country is in a surplus market condition because the supply of workers (600) is larger than the demand from employers (500). In a free market for labour, with no unions or wage restrictions, you could expect the wages to decrease. Let's see what this looks like on a graph.
Graph
According to the graph, a wage of 25 dollars per hour would be the reason for the unemployed. If wages came down to 24 dollars, employers would increase their quantity demanded for labour to 550 h/m, and households would reduce their quantity supplied to 550 h/m, which would clear the market.
Of course there are issues of trust in employers to actually increase employment, and not their profits, which undermine such an argument. The solution might also be to stimulate productive investment, to create employment, rather than reduce worker income.
Let's see what a labour shortage looks like on a graph.
Graph
As you can see, the issue is unfilled positions. The employers of CatWorld are ready to hire 890 hours/month, but there are only enough workers to provide 760 h/m. Free market forces would see the wages increase, from 23 to 24 $/h and employment settle at 800 h/m.