The Affects of Labor Market on Supply and Demand - Coursework Example

The Effects of Labor Market on Supply, Demand & Price By Anastassija Szymoniuk Table of Content Introduction 3 Characteristics of labor market 4 Factors influence labor market and unemployment 5 Labor Market affects Demand, Supply and Price 6 Conclusion 7 Reference 9 Introduction Demand, Supply and Price; these three are the main factors of a market. Each of these three factors is very much dependent and influenced by the other two factors. A stable market always needs an equilibrium position of these three but in reality, any market study will show that all three factors are variable and that price is most volatile i.e. it fluctuates very frequently. Demand and supply are the key characteristics, which determine and regulate the price of any goods in the market. Demand of particular goods is measured by the quantity of those goods that buyers (or demanders) are willing and able to buy over a period of time under a given set of conditions. For company perspective, it is the total sales of a particular period of time. These conditions are the key factors of market which determine the demand like price, supply, income, price of related goods, no of buyers etc. Supply is the representation of production rate of a firm or particular goods. For final good it is the process of travelling goods from production house to market. Two important factors influence supply i.e. demand and production (Stonebraker, “Demand”). Price is the reflection of demand and supply of any particular good. It fluctuates very frequently in the market, which proportionally influences the purchasing behavior of individuals. Price and demand has negative relationship i.e. demand of a common goods decreases with the increase of its price. Sometimes if demand of a particular good falls then the company increases its price to achieve the operational cost which includes cost of production and distribution. There are different key factors in the market which influence or affect demand, supply and as well as price. These are production factors and recession or depression (Kash, “Law of Demand”). Production of any goods is influenced by mainly labor and capital supply. Production rate changes frequently because of the labor market mainly i.e. availability of efficient labor in that location. This is the most important factor of production. Characteristics of labor market Labor market refers to the status of availability of efficient labor in a market that determines and regulates the productivity of firms. So, if in a production market, efficient labors are available then the production rate increases. According to David Ricardo and Thomas Malthus’s wage population mechanism (Caravale & Tosato, p.126) sufficient capital outflow or capital investment increases specialist and divisional labor supply in a market. So capital investment increases production and simultaneously the demands of labor increases. This a cyclic process, which makes a market efficient supply of labor and capital after few cycle in a particular market. A stable market condition increases the experienced labor as the demand of labor is high so full employment will happen and everyone in get job and can gain experience. A availability of trained theoretically trained labor like the specialist will also increases if the market condition remains good i.e. sustainable amount of capital investment happens due to substantial return on investment. This happens because people’s tendency to peruse professional courses like engineering or management studies rises due to sustainable employment opportunity (Shimer, From Hours to Unemployment, p.18). These all influence the supply of specialist or trained labor in the market. Specialist labor contributes a good percentage in the total wages of an on organization i.e. they are the high skilled as well as high paid labor of any production companies. Another factor which determine the supply of specialist labor in a country i.e. the integrity of the education sector, that means no of institution in a country which provides quality education and training for professional industry oriented or business oriented coerces. Another factor is there which affect the supply of efficient labor, it is increase or decrease of educational standard i.e. the evaluation process of knowledge and skills a person is having like the gradation, percentage, percentile etc and pass standard which determine the extent of evolution of knowledge. For example a person can have the degree of high qualification like masters in a low standard evolution process without having substantial amount of knowledge. (Here it is explained that why education is the key factor which affects labor supply of a country) Other important factors of labor market, which determines the supply of divisional labor, are the population and literacy rate. Divisional labors are those who work for a particular division of production process. For particular process of the overall production process is done by particular expertise. (Meaning of divisional labor) A production firm directly or indirectly needs a greater percentage of divisional labor of its total employment. Higher population supplies higher number of divisional labor because in this position pre trained labor is not needed only the qualification is needed by which they can learn the work after training provided by the production firm (Shimer, From Hours to Unemployment, p.18). Factors influence labor market and unemployment There are many factors which influence labor market like strikes, boycotts etc. These are the main drawbacks of labor market and as well as producer or manufacturer. These are the negative outcome of political strategies, which not only hampers the production outflow but also affects the economical welfare of the society as well. An unethical influence in the divisional labor union by the local politics results this type strikes in the production houses or factories which makes a chaos in the continuous flow of pre assigned production and as we as affect in the market factors like supply, demand and lastly the main factor price. As a result the only the households suffers by doing necessary consumption of goods with higher price or over price i.e. they have to pay more than the worth of the goods (Jacobsen & Skillman, p.91). Labor Market affects Demand, Supply and Price How different types of views can explain labor because all are extremely related or influenced by each other. By the forward or backward integration the statement can be explained. Two different status of labor market is un-employment and full-employment of a market or a country. In case of good production in a market, two different reasons are there i.e. the substantial amount of capital inflow and the availability of efficient labor. Theory of production says that production of goods depends on the land, labor, capital investment and entrepreneurship or management. As land and entrepreneurship are the fixed capitals, those are neglected. So production of goods mainly depends on Labor and Capital if other things remain constant. These other things are factors, which affects both labor and capital. It is already mentioned above that how, many factors affect labor market. For capital investment, it is depended mainly on the retune on investment in last few years in a particular market and some near future estimation. So if capital investment remains stable or constant then only the labor market or efficient labor supply in the market will influence the production (Rasmussen, p.13). If capital investment remains constant, two important stages of labor market are unemployment and full employment. In case of full-employment, efficient and experienced labors in the market are limited and as they are the higher contributor in the total wage of the firms they again have strong negotiation power in this limited supply situation and firm have to hire in high wage rate or salary to sustain the business or to continue the production as well as the supply of goods. So cost of goods increases and to keep the ROI or the unit profit constant the firm has to increase the price of the goods proportionately with the cost of production increases and demand of the good decreases and as well as supply decreases. So cost production increases, price increases, demand falls as well as supply falls (Mankiw, p.90). In case of un-employment, the supply or availability of specialist and divisional labor remains high and the firms get the high negotiation power or buyer power to hire efficient labor from the market in very cheap rate to reduce the cost. This is not the policy of any firm that if it can lower the wage rate as well as the cost of production by sufficient supply of labor in the market, it has to minimize the price of the goods. It happens only because of the firms’ participation in the perfect competition market. If one firm gets cheap labor another also will be getting and they will also want to get higher demand of their product and all the firms come into the price war to sustain in the perfect competition market. So, the price of the goods decreases and demand becomes high as well as supply increases. As a result individuals or households get benefited (Boeri & Ours, p.9). Conclusion Labor market has a substantial impact on the productivity of firms as well as the market. If the sufficient labor supply is there in a market, another factor of production i.e. capital inflow will automatically increase. So the market will get effective supply of product and the price of the products will reflect the actual worth of the goods i.e. no overpriced or below priced product will be sold in that market will become an effective and growing market as by satisfactions of these condition both the producers and the customers will be benefitted. Firms will get a good demand of the product and the customer will get standard price and continuous supply of goods. The fluctuating unemployment rate negatively affects the households as well as small business. If a small business produces any goods in time of increased unemployment i.e. cost of production minimum due to low ages and according to this the firm set the price then after certain period if the unemployment rate decreases means cost production will increases due to high wages and price will increases. But the demand of that good will fall as the consumer become habituated with the previous low price and their purchasing will not purchase the product more if it is not so much necessary. The demand of the product will fall and if it is a very necessary product the n consumer have to buy in overpriced. Thus labor market affects the factors of market like demand, supply and as well as the price. Indirectly the labor market affects both the consumer and the producer. Reference Borei, T. & Ours, V, J. The Economics of Imperfect Labor Markets. Princeton University Press. 2009. Jacobsen, P. & Skillman, L, G. Labor markets and employment relationships: a comprehensive approach. John Wiley & Sons. 2004. Kash, R. The New Law of Demand and Supply: The Revolutionary New Demand Strategy for Faster Growth and Higher Profits. Currency/Doubleday. 2002. Mankiw, G, N. Principles of Economics. Cengage Learning. 2011. Rasmussen, S. Production Economics: The Basic Theory of Production Optimisation. Springer. 2011. Shimer, R. Labor Markets and Business Cycles. Princeton University Press. 2010. Stonebraker, J, R. June, 2011. Demand and Supply: An Overview. Retreived on March 24, 2012. < http://faculty.winthrop.edu/stonebrakerr/book/demand_and_supply.htm>. Caravale, G. A. & Tosato, D. A. Ricardo and the Theory of Value, Distribution and Growth. Routledge. 2003. Read More