Labour spending ppt

1. Labour Market

2. Who earns the most?

3. How much do they earn?
Computer Engineer S$4,165
Social Worker S$2,200
General Manager S$11,071
Manufacturing Labourer S$1,073
What do
others say?

4. Factors Affecting an Individual’s
Choice of Occupation
Wage
factors
Non-wage
factors

5. Wage
Factors
Overtime Pay
Bonuses
Commission
Wages

6. Non-Wage
Factors
Job
Satisfaction
Working
hours
Working
conditions
Fringe
Benefits
Job
Security
Career
Prospects
Size of the
firm
Location
Pension
Holidays
Type of Work

7. Wage Determination
“Wage, like price of product, is also
determined by the Demand & Supply
of labor for an occupation.”

8. Changes in Earnings (Wages)
1) Demand of labor changes
2) Supply of labor changes
3) Relative Bargaining power of employers and
workers
4) Government Policies. Eg: National Minimum
wage
5) Government polices on immigration

9. 6) Public Opinion:
Public, for a reason will claim to increase
their wages
7) Anti-discrimination policies:
Men & Women should get equal pay for the
same work
8) Changes in technology:
New technology can replace labor  supply
of labor ↑  wages ↓
New technology  demand of engineer,
electricians, maintenance, etc  wages↑

10. But still, differences in earning can
be due to…….
1) Skills
Skilled . Eg: Doctors Unskilled Eg: Cleaners
2) Gender
Male Female
3) Nature of the Job
Dangerous Or not
4) Private Sector Public Sector
5) Economic Sector
Primary:
Agriculture
Secondary:
Manufacturing
Tertiary;
Services

11. Definition of 'Labour Market'
Definition: A labour market is the place where workers and employees interact with each
other. In the labour market, employers compete to hire the best, and the workers compete for
the best satisfying job.
Description: A labour market in an economy functions with demand and supply of labour. In
this market, labour demand is the firm's demand for labour and supply is the worker's supply of
labour. The supply and demand of labour in the market is influenced by changes in the
bargaining power.

12. Causes of shifts in labour demand curve
The labour demand curve shows the value of the marginal product of labour
as a function of quantity of labour hired. Using this fact, it can be seen that the
following changes shift the labour demand curve:

13. The output price: When output price rises, the labor demand curve shifts to the right {
more labor is demanded at each wage. When output price falls, less labor is demanded at
each wage.
Technological change causes the MPL function to change, generally to increase at each
level of L. This shifts the labor demand curve to the right.
However, it is also possible for technological change to shift labor demand to the left. If for
instance a cheap industrial robot is installed in the production process for some industrial
good, the marginal product of labor could decrease because the robot can replace labor.
Such a technological change is called labor- saving.
Supply of other factors
The quantity available of other factors of production can affect the marginal product
of labor. For example, if the supply of ladders falls, the marginal product of apple
pickers will decrease.

14. Causes of shifts in labour Supply curve
Labor Supply
People face a trade-off between work and leisure. Assume that leisure is enjoyable but work is
not.
Leisure has a cost. This is the cost of the work given up to enjoy the leisure. So the cost of 1
hour of leisure is the person's hourly wage.

15. Changes in tastes (attitudes towards work): The number of women employed in paid
jobs or looking for work rose from 34 percent in 1950 to 60 percent in 2000. Some of this
change can be explained by changing attitudes towards women working. It was
considered less acceptable for women to work outside the home in 1950 than in 2000.
Changes in alternative opportunities: The supply of labor in one market depends on
the wage available in other markets. If the wage in alternative markets rises, workers will
switch to the alternative markets, and supply of labor in the first market will shift to the
left.
Immigration, population growth: As the population grows or shrinks, the labor supply
will tend to shift to the right or to the left.
Changes in the Prices of Related Goods and Services
Several goods and services are complements of labor. If the cost of child care (a
complement to work effort) falls, for example, it becomes cheaper for workers to go to
work, and the supply of labor tends to increase. If recreational activities (which are a
substitute for work effort) become much cheaper, individuals might choose to
consume more leisure time and supply less labor.

16. Example
Suppose apples become more popular - demand shifts to the right – price of apples
rises.
The marginal product of labor (MPL) has not changed. But value of marginal product of
labor (P x MPL) has increased.

17. Trade Unions
“An association representing workers
interest is called a Trade Union”
• General Union: Workers from different
industries.
• Industrial Union: Workers in a specific
industry. Eg: Rail Industry, Automobile
Industry, etc

18. Functions of Trade Unions
• Collective bargaining & negotiation for
-Wages Working Condition
-Working hours -Holidays
-Health & Safety -Overtime pay
-Bonuses -Job security
-Pensions -Unemployment pay
-Education and Training
-Fixing a national minimum wage

19. Advantages of Trade Unions
• Increased wages for its members
• Counterbalance Monopsony Power: In the face of Monopsony employers,
Trades Unions can increase wages and increase employment. Monopsony
employers are those who have market power in setting wages and employing
workers. Traditionally, monopsonies occur when there is only 1 firm in a town, or
type of employment.
• Represent Workers
• Productivity Deals
• Important for Service Sector: Modern economies have seen a fall in trade union
power. This is because of a decline in manufacturing and rise in service sector
employment. Service sector jobs tend to more likely to be part time and
temporary; unions are needed to protect workers in these kind of jobs.

20. Disadvantages of Trade Unions
• Create Unemployment: If labour markets are competitive, higher wages will cause
unemployment (Q3-Q2). Trades unions can cause wages to go above equilibrium
through the threat of strikes e.t.c. However when the wage is above the equilibrium it
will cause a fall in employment.
• Ignore non Members: Trades unions only consider the needs of its members, they
often ignore the plight of those excluded from the labour markets, e.g. the
unemployed.
• Lost Productivity: If unions go on strike and work unproductively (work to rule) it
can lead to lost sales and output. Therefore their company may go out of business
and be unable to employ workers at all.
• Wage Inflation: If unions become too powerful they can bargain for higher wages,
above the rate of inflation. If this occurs it may contribute to general inflation.
Powerful trades unions were a significant cause of the UK's inflation rate of 27% in
1979.

21. Specialization
“The process of doing something
that you are best at is called
SPECIALIZATION.”
• A country or
• A firm or
• An Individual can choose to specialize

22. Specialization of an Individual
• Also called “Division of Labor”
• Each individual specialises at one task
of production rather than the whole
process
• Hence, the output per worker
increases.

23. Advantages
• Time is saved
• Worker can be trained more quickly
• Worker becomes more skilled  if demand is
more  wages will be more
• Reduces the pressure of the job, because it is
easy to do it

24. Disadvantages
• Worker maybe bored
• It may increase the per unit cost (cost of
production)
• If the worker is absent, his work can be
covered by another worker
• If can do only one job, then difficult to find
another kind job

25. The Motives for
• Spending
• Saving
• Borrowing

26. Why do
people
SPEND?
Goods &
Services Food
Clothing
Housing
Electricity,
Gas, Water
Education
Entertainment
Transportation

27. Factors affecting Spending
• Disposable Income
• Wealth
• Confidence
• Rate of Interest
• Advances in Technology

28. Why do
people
SAVE?
To buy a
House/ Car
Retirement
Children’s
future –
education
Unexpected
problems
To earn
interest
To achieve a
targeted
amount
Holidays

29. Factors affecting Savings
• Income
• Wealth
• Rate of Interest
• Consumer Confidence
• Tax on Interest
• Range and quality of financial institutions
• Age
• Social attitudes.

30. Why do
people
BORROW?
To maintain their
living standards
To buy a
House/Car/
Holiday
Education
For business/
Investment
Personal
purpose

31. Factors affecting Borrowing
• Availability of loans
• Rate of interest
• Confidence
• Social attitudes

32. Differences in Expenditure
patterns of….
• Spending
• Saving
• Borrowing
These Expenditure
depends on their Incomes
(Disposable Income)

33. Spending & Saving
patterns are
different because
Incomes are
different
Tastes & Needs are
different: Transport,
Entertainment, Medical,
Recreation, Clothing
Family with or
without children
Teenager or
old people

34. Average Propensity to Consume
• A poor person earns $1000  Spends $900 
spends 90% of his income
• A rich person earns $10,000  Spends $4500
 spends 45% of his income
• So APC ↓ with ↑ in income
APC = Consumption = 0.9
Disposable Income
APC = Consumption = 0.45
Disposable Income

35. • A poor person earns $1000  Spends $900 &
saves $100  saves 10% of his income
• A rich person earns $10,000  Spends $4500
& saves $5500  saves 55% of his income
• So APS ↑ with ↑ in income
Average Propensity to Save
APS = Savings = 0.1
Disposable Income
APC = Savings = 0.55
Disposable Income

36. Borrowing allows
you to spend more
than your
disposable income
Difficult for the poor to
borrow because they
have less ability to
repay
It has a cost
(Interest that you
pay)