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Definition of Labour Market

This is a market where labour is bought and sold. It is the market where wages and conditions of employment are negotiated and determined.

The Demand for Labour

Demand for labour is derived demand. It refers to the quantity of labour (human effort) or man-hours producers are willing and able to hire at different wages.

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The demand for labour curve is downward sloppy indicating that the higher the wage rate, the lower the quality of labour employed, and the lower the wages the higher the quality of labour employed.

Factors Influencing the Demand for Labour

1. Total demand for goods and services: The higher the demand for goods and services produced, the higher will be the demand for labour and vice versa

2. Wage rate: When wages are low, the demand for labour will be high but when wages are high, the demand for labour will be low.

3. Labour Productivity: The higher the level of productivity of labour the higher the demand for labour and vice versa.

4. Size of the Market: If the market is large, more will be produced and more labour will be employed, and vice versa.

5. Expectation of rise in business conditions: If producers expect a brighter or favourable condition of business activities, there will be an increase in the demand for labour and vice versa.

6. Number of Industries: The larger the number of industries or enterprises in a country, the greater would be the demand for labour. If they are few the demand for labour will be low.

Supply of Labour

Supply of labour refers to the number of hours the labour force is willing to work at different wages rate. Naturally, the higher the wages offered, the larger will be the amount of labour supplied. This means that as wages rise the man-hours supplied increases (upward sloping) but after a point, man-hours supplied starts decreasing. This gives rise to a backward sloping labour supply curve. The backward-bending labour supply curve occurs when an even higher wage actually entices people to work less and consume more leisure or unpaid time.


From the graph if wages were to increase from W1 to W2, Workers would be willing to increase hours worked for pay from L1 to L2. However, if the wages increased from W2 to W3, the workers feel that they can work less and enjoy more leisure and less work, hence labour supply falls.

Factors Affecting Labour Supply

1. Size of the population: The larger the size of the population, the larger the quantity of labour supplied and vice versa.

2. The proportion of the population willing to work: If the proportion of the population willing to work is larger it would be the quantity of labour supplied and vice versa.

3. Size of wages paid: Initially, higher wages attract higher labour supply. But after a point, higher wages will attract lower labour supply because workers want to enjoy leisure and vice versa.

4. Number of hours worked by each individual: If the number of hours worked by each individual is high, the total man-hour supplied will be high.

5. The official school living age: If the school leaving age is high, labour supply will be low and vice versa.

6. The law and customs of the society: In some societies, women are not allowed to take up paid employment, in such a society the number of people willing to offer labour service will be low compared to a society where women are allowed to work.

7. Working conditions and benefits: Working conditions and benefits such as overtime, car clean, staff – quarters, pension etc. Will attract more man-hours.

8. Location of firm: A firm that is located in an urban centre with the necessary infrastructure will have a larger labour supply, than a firm located in a rural area without infrastructure facilities.

9. Age distribution and population: If there are very many people in the dependent age groups, the supply of labour will be low. If there are many people in the working-class, the supply of labour will be high.


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