Introduction
Productive business activities are influenced by human factors including labor and wage rates. Human work is significant to any economy since it determines the quality and quantity of products and services delivered by a particular firm. While many businesses compete for limited specialized and professional skills among the employees, various factors affect the job market. There is increased demand in the supply of work in the market that requires special knowledge. Although the technological developments are slowly eliminating many employees from their jobs, many companies are competing for highly qualified individuals who can rhyme with the changes. The demand for a particular workforce determines the wage rate among the employees. Therefore, the demand and supply of labor influence the minimum and equilibrium wages in the employment market.
Labor
The sale of goods and services is often done for the exchange of money or something else. Human energy is crucial for a complete economic transaction or business activity. For instance, doctors are employed to treat patients and accountants to provide financial reports for the companies. Labor is described as any service of value rendered by a human in the wealth generation, other than capital accumulation and provision which are part of normal business undertakings (World Bank, 2018). Consequently, the workforce is valuable to the business and the individual offering the service. The amount of work spent in the production of certain commodity help determine their market value. The early economists, through the labor theory of value, propounded those various goods were exchanged for certain relative prices in the market due to their production number of working hours (Finger, 2021). Therefore, labor is a multifaceted economic concept that helps determine market prices and demand for specific goods or services.
Demand and Supply of Labor
Labor and capital are crucial inputs that companies choose in determining outputs and making pricing decisions. Therefore, a business’s demand for labor is derived from its output and strategic planning. For instance, a company that aims at doubling its production must increase its number of employees. Meanwhile, a firm to produces quality products at competitive prices must hire highly qualified professionals. The marginal revenue product of labor help firms determines their earnings by employing one more working unit (MacKenzie, 2021). The supply of jobs helps the companies determine the wages payable to the employees. Therefore, the demand and supply of labor are determined by the circumventing factors in the labor market.
Factors Affecting Demand and Supply of Labor
Labor Productivity
Productivity is the state of service being effective and profitable among businesses. Many companies are formed to make a profit for their sustainability in the market. Therefore, the firms engage in business activities that bring more money. Professions in medicine such as surgeons are expensive, and hospitals are more profitable compared to other medical services. Moreover, some forms of employment are rare but lucrative. However, the scarcity of given labor does not necessarily mean that it is financially attractive. Instead, some jobs are common, but innovative and unique, attracting more clients. Labor productivity is determined by its profitability. Therefore, an upsurge in labor productivity increases a firm’s demand for such a workforce, shifting the labor-demand curve outwards.
Changes in Technology
Technology plays a significant role in determining the demand for labor. The technological effect on jobs might be either positive or negative. Automation of industrial activities such as quality control has enhanced the laying off of many workers. For instance, the inventions in smart security technologies have taken the place of watchmen and police officers. Meanwhile, technological integration among business activities has led to the development of new professions. Many companies are digitizing their activities and need employees with technical skills. Therefore, software engineers, system analysts, and website developers, among others are in demand. Furthermore, many careers are incorporating technology in their routine activities. Consequently, many companies have increased the labor demand for people with technical skills.
Changes in the Number of Firms
The number of firms is significant in determining the supply and demand of labor. The firms hire people with different specialized skills that are crucial for productivity and profit-making. Firms in similar industries need laborers with similar qualifications. For instance, the air transport industry needs air hostesses, pilots, and aeronautical engineers, among others. Therefore, an increase in the number of airline companies would lead to an increase in the demand for people working in the industry. Meanwhile, a decrease in the number of firms in the airline industry would lead to a decrease in the demand for professionals working in the airline industry. Therefore, an increased number of firms leads to an increase in demand and supply of labor.
Changes in Demand for a Firm’s Product
The quantity and quality of production are crucial determinants of the demand and supply of labor. Many companies aim at producing quality labor and services that are attractive to the existing consumer base. Additionally, the firms adopt various growth and marketing strategies that bring more customers aboard. The increased number of clients positively influences the number of products in demand. Consequently, an organization with a high demand for its products may increase its workforce to meet its consumer needs. The increased number of employees is significant for a fast and high production rate. Therefore, positive changes in the demand for a firm’s products cause the labor-demand curve to shift outwards.
Firm Profitability
The demand for labor among companies is a multifaceted concept that depends on their ability to remain sustainable. Companies that are more money-spinning employ more employees since they can sustain the increased labor. Moreover, profitable businesses can expand, requiring more workers. Furthermore, firms with high rates of income can adopt smart technologies that increase labor demand for specific professionals. Meanwhile, organizations that are not lucrative reduce the number of their laborers for sustainability. For instance, a bank that makes huge profits has the financial capacity to enhance its activities such as opening new branches and acquiring complex fiscal technology. Consequently, such a bank would need more staff to work in the newly opened branches and acquire technology. Increased profitability positively impacts the demand and supply of labor.
Labor Market
The labor market is a collective term that defines the intersection of demand and supply of employment. The market has defined a place where the supply and demands for jobs meet, with the workers providing the services needed by the employers (Duggan et al., 2020). A worker is any individual who is willing to exert their knowledge and skills when offering services for compensation (Duggan et al., 2020). Meanwhile, employers are individuals or organizations that need a worker who can complete a specific task. Therefore, simply put, the worker is the seller of labor while the employer is the buyer of labor. The employees and employers are connected by their salaries. In a competitive labor market, the workers move to where there is a high demand for their skills and lucrative salaries. Therefore, the labor market involves the exchange of employment for salaries between workers and employers.
Factors Influencing Labor Market
The Number of Qualified People
The labor market conglomerates professionals from all backgrounds who seek employment from various organizations. The professionals have different qualifications that make them more competitive than others. A job market with many individuals with similar qualifications lowers the wage rates since the employers have more power in the market. Meanwhile, a smaller number of qualified people makes a given career more lucrative. The decreased number of qualified workers increases their bargaining power attracting competitive employers only. Therefore, many individuals sharpen their skills to become more competitive in the labor market, attracting lucrative job offers. Therefore, the number of qualified workers helps determine the wage rates and employers’ competitiveness.
The difficulty of Getting Qualifications
Many companies demand job qualifications that may be beyond workers’ achievements. For instance, some firms have set a specific number of years of experience for potential employees. However, the education system of a given country may encumber a worker achieving several years of experience. Moreover, many businesses require additional skills that may be unachievable by the workers. Technology companies may require all their employees to have a technical background. Consequently, the people working in the human resource and other non-technical departments may find it difficult to acquire technical skills. Therefore, the difficulty in getting the right qualifications makes it difficult for the workers to explore the labor market.
The Non-Wage Benefits of a Job
Although salary is a determining factor in the labor market, the non-wage benefits boost the employers’ capacity to attract more workers. The non-pecuniary factors include those benefits other than money that employers offer their workers. Working conditions, amount of leisure time, and insurance covers are examples of the non-wage benefits of a job. Many employees are attracted to companies with a cordial working environment, and that which is less risky to their security and health. Moreover, the workers are comfortable cooperating with businesses that have their interests protected through insurance covers for medical complications and accidents. Employers who offer sufficient leisure time to their workers are more attractive than those without. Non-monetary benefits can help employers get highly qualified individuals in the labor market.
Demographic Changes and Immigration
Demographic factors such as age, gender, and immigration, among others affect the labor market in a given country. Many companies need the younger generation who are believed to be more creative and proactive in the workplace. Moreover, the youths are updated with the current technologies and can handle various activities in an organization. Meanwhile, some companies have gender preferences when recruiting workers. The gender predilections may be influenced by the organization’s values and mission, or the job description may fit a specific gender. Immigration rates affect the population of a given country and the consequent number of workers in the labor market. Immigrants from developing countries offer cheap labor in first-world countries. Consequently, the wage rates may be low due to decreased demand in the supply of labor among companies in the first world with immigrant workers. The demographic factors determine labor supply and demand, and wage rates in the job market.
Wages
Workers need salary for their sustainability and upkeep of their loved ones. A wage is described as the payment of money for labor or services offered under the contract of labor conditions and terms (Platts et al., 2021). The contract of employment describes the amount of money payable to individual workers after a defined period. The money, or salary, earned helps the workers meet their daily needs such as mortgage payments, school fees, and medical bills, among others. Therefore, the labor benefits the employer and the workers since they all gain financially from it. The amount of salary earned by the individual laborer is determined by their job description, employment level, and the working duration. Therefore, the salary is relative, and some employees may earn more than others who are working in a similar organization.
Equilibrium Wage
The equilibrium wage rate is achieved when the supply and demand for labor intersect. The employers get the workers up to the point where the extra costs of hiring a worker are equal to the extra sales revenue from selling their output (Langbein & Roberts, 2022). Employers like to hire workers when the salary market value is low. Meanwhile, the workers like to be employed when the salary market value is high. Consequently, the equilibrium wage rate balances out the conflicting interests of the employees and employers. Equating the market demand and supply of labor in a perfectly competitive market helps determine the equilibrium salary rate (Platts et al., 2021). Therefore, the equilibrium wage rate helps the employees and employers reach a consensus without conflicting interests during the hiring phase.
Minimum Wages
Although the contract of labor is between the employer and employee, the law intervenes to ensure that the workers are not exploited. Some employees opt to pay less salary to their workers compared to the amount of labor supplied. Since the employers have more power than the employees, they may exploit them through insufficient payments. The law has set the least amount of salary that employers can pay their workers (Caliendo et al., 2019). Therefore, different jurisdictions have formulated their minimum wages depending on the affected profession.
The minimum wage is beneficial for the workers in the labor market. The wage help increases the income of the low-paid workers who have insufficient job qualifications. Consequently, the living standards are uniformly improved across the society. Moreover, the employees are motivated, increasing their productivity at companies. The businesses benefit from improved productivity, remaining sustainable in the competitive environments. Furthermore, the minimum wage increases the incentive for people to enter the job market and accept employment. However, the wage rate is associated with various demerits in the job market. Some of the set minimum wages are beyond small companies in the labor market. Consequently, there is increased unemployment in the competitive markets. Additionally, setting minimum wages encourage the use of the black market which is illegal. While the minimum wage rate is beneficial, it is associated with various disadvantages.
Conclusion
Human labor is essential in business activities since it determines productivity levels and salaries. The supply of labor is influenced by factors such as the number of firms, productivity levels, changes in technology, and firms’ product demand. The job market involves the activities of exchanging labor for wages. Various factors influence the job market activities: the number of qualified people, difficulties in getting qualifications, demographic factors, and non-monetary benefits of certain employments. While the equilibrium wage rate helps offset the conflicting interests between the workers and the employees, the minimum wage rate is the least salary an employee can get as set by the law. The equilibrium and minimum wage rates are determined by the demand and supply of labor.
References
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