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Why Economics of Labour Market

Economics of the labour market is the study of the interactions among the forces of demand and supply of labour and the labour market institutions and their influence on labour market outcomes, based on the application of scientific methodology of economic analysis.
1.The Uniqueness of Labour Market
Labour is concerned with human beings and cannot be treated as other non-human factors of production. Labour is embodied in the seller , that is cannot separate the services of labour from the seller of that labour.
Implications in the Labour Market :
Although wages are important in the labour market, there are many other non-economic factors that affect labour. The non-economic factors are partly physical in nature , such as the risk of injury on the job and partly social in nature such as the prestige of the job etc. Thus, the decision of the worker concerning whom to work for and the decision of the employer concerning whom to employ are based on complex multitude of considerations including not only the wage paid.

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Why Economics of Labour Market

2. Most employment relationships are long term:

In the product market buyers may switch from one to another on a daily basis in pursuit of the most attractive price. Workers become experienced and efficient on the job overtime , hiring new works involve costs(adverts, hiring , training, etc.), employers therefore rarely sack workers making the labour market less sensitive.
Implication in the labour market:
This means that there is less sensitivity of labour market outcomes , especially wages to labour market forces and for that matter the inability of wages to clear the market.

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Why economics of labour market

3. Heterogeneity (Diversity) of workers and jobs: Another feature of the market that distinguishes it from most product(commodity) markets is the extreme diversity in the characteristics of the good being sold.

Individuals differ in several ways , such as their levels of education, ability, experience ,age, sex ,physical appearance, location and personality etc. making the source of labour extremely diversified.
Implication in the labour market :
The process of exchange in the labour market is made more complicated and costly due to the enormous degree of diversity of actors in the labour market.
The exchange in the labour market is not only a function of the wage rates but also of non wage characteristics such as age, personality, education, sex etc. that differentiate workers and jobs from one another.

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Why economics of labour market

4. Multiple Sub-Labour Markets:
Within the national economy , the market for labour can be broken into several different sub-markets e.g. Skilled and unskilled labour , market for nurses is different from market for teachers etc.
In the area of working conditions too, wages and other fringe benefits, education and skill requirements in each of the markets also differ. This makes the exchange process in the labour market differ from that of the commodity market.

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Why economics of labour market cont.

5. Labour is perishable :
This means that labour can not be stored , the depreciation of the source of labour (human beings) depends primarily on the time rather than use. Therefore, if todays labour services are not used , they can not be stored for ever.
People have preferences in the use of time : Raising children, visit relatives, rest ,work for income etc. Unlike other factors of production, it is therefore required that the economics analysis of labour demand and supply be conducted differently from other factors of production and goods or services.

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Labour Market Institutions

Labor market institutions refer to the structures, policies, and organizations that influence the functioning of labor markets.
These institutions play a crucial role in shaping employment conditions, wage levels, and worker protections.
Examples of labour market institutions in Ghana are industrial relations and labour laws, labour unions and employers' association, and minimum wage legislation etc.
Labour Force -refers to people above (16) years of age (the case of Ghana) who are either employed or unemployed (actively seeking work or expecting to be recalled from layoff).
Labour Force = Employed + Unemployed

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Labour Market Institutions

Where the employed are people who have entered into contracts with employers and are waiting to be paid. These include both the formal and informal sector workers.
The unemployed refers to people who are eligible to work , not working and are seriously looking for work. There are 3 categories of such people, these are :
Those who have been laid off
Those who have been fired or quit their jobs and can not find a job.
Those who are entering or re-entering the labour market and have not found any job yet. Examples of such people are fresh graduates and women who take time off to have babies and want to come back into the labour force.

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Labour Force Participation Rate

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Labour Force Participation Rate

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Unemployment Rate (UR)

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Unemployment Rate Cont.

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Some Key Concepts

Wages: Refers to payment for a unit of time worked. It can be paid on hourly, weekly, bi-weekly and monthly basis. Wages form the core of earnings.
Wages often refers to base pay agreed upon between an employer and an employee.
Wages are typically variable, paid by the hour or for specific units of work, and are more common in manual labor or hourly jobs. Waged employees may also be eligible for overtime pay.
Can be expressed as a nominal wage (actual monetary amount) or a real wage (adjusted for inflation).
Salary :A salary is a fixed, regular payment made by an employer to an employee for their work, often expressed annually but paid out in regular intervals (e.g., monthly or bi-weekly).

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Some Key Concepts Cont.

Earnings : Earnings include salary as well as additional forms of compensation (e.g., overtime, bonuses, commissions).
Earnings include wages as their base component, but they encompass additional income a worker receives as part of their labor-related compensation.
While salary is a component of earnings, earnings can vary based on job performance, working hours, or other incentive-based compensation.
Income : The total inflow of resources or money received by an individual or household, from all sources, within a given time frame.
Broader than wages , salaries or earnings as it includes non-labor income like rents, dividends, and government transfers (e.g., pensions, social benefits).

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