Question

In: Economics

synopsis of Labor markets and income

synopsis of Labor markets and income

Solutions

Expert Solution

The labour markets like any other are run by the forces of demand and supply. Here demand for labour is done by producers who would want the labour force to become a part of the formal employment setup which then would be responsible for production of goods and services.

On the other hand, the supply is provided by those that want to become a part of this setup in terms of the people that are ready and willing to work for the labour markets respectively.

The forces of demand and supply and the worth of the labour force help in deciding the final outcome or income for people. For example, in developed countries, the unemployment rates or the people that are seeking a job and are unable to find one are low. This is because of their level of productivity as well as total education which they receive over a period of time.

The income is decided by the value of goods and services which are produced by the labour force and other critical elements such as the total profits which firms receive as a result of the production process. Further if the demand for labour force is on the higher side as compared to the supply, the income also sees a surge and vice versa.

For example, the developed world sees higher income primarily due to the fact that they produce industrial goods rather than developing or underdeveloped countries that rely on primary production such as agricultural goods and thus receive less income for the same.

Thus, we can conclude by saying that the income is a result of the labour markets coming together and the supply and demand for goods and services meeting one another. As this happens, it helps in deciding the income which people will receive on the basis of their productivity and the overall benefit which they provide to the company in which they work. Those sections which do not find work are known as unemployed.

The following graph will help in explaining the same: -

In the above graph we see two lines indicating the demand and supply of the labour force. The demand curve is downward sloping and indicates that at lower price the demand for the labour force is more. Similarly, the supply curve is upward sloping and indicates that at higher prices the supply is more.

The equilibrium of demand and supply, hep in deciding the Income or the price of the labour force. Point P1 and P2 describe conditions wherein, either the supply of the labour force is more or the demand is more which changes the income and price accordingly.

Please feel free to ask your doubts in the comments section if any.


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