Question

Use an appropriate economic model to explain wage rate determination in the labour market. Identify relevant factors that impacted on wage settlements during the last twelve months and then illustrate, from a theoretical perspective, how these factors could impact on the equilibrium wage rate, the level of employment and economic growth. How have these wage settlements impacted on your business organisation? What strategy could you implement to mitigate the risks that could arise in the future following the recent wage settlements?

Answer 1

In an appropriate economic model wage rate determinant in the labour Market - wages are determined by supply and demand. This is called market theory of wage determination. The price they charged is depend on various factor of supply and demand side. The most basic of these are nos. Of worker available (Supply) and nos. of worker is needed (demand). In addition to this wage level are shaped by the skill sets workers bring and employers need.

1) nos of availability

2) skill sets

3)high supply low demand

4)Low supply high demand

5) Location

Interplay between all of these factors eventually cause wage to Settle , that is the number of workers, number of jobs,the skill involved,and the location of the job eventually lead workers and employers to reach at wage agreement. In this when supply and demand meets where equilibrium wage rate established.

In short price of labour is determined in the free market by the intersection of supply and demand.

In order to mitigate the risk in wage settlement, we try to maintain equilibrium wage. We would follow the steps and will have clear agreements on place.

And will go with long term wage settlement. We can say settlement is the only legal tool to achieve organisational peace.

To mitigate the risk of wage settlement we should go with the "WIN WIN" Settlement.

Below are few step and kind of startegy which helps to mitigate risks

Credibility of factory management

Statutory compliances

High level of engagement with workmen

Engagement with government authority

Stating the expected outcome to the union

Wage settlement can be harbinger of improved morale and productivity and can be safely closed within the four walls of the organisation.

Equlibrium state of wages.