1. The Labour Market Demand for Labour Supply of Labour
Equilibrium and Disequilibrium
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2. Marginal Product (output)
Demand for Labour
Demand for labour (workers) is a derived demand.
Eg: a small café makes sandwiches
Number of Workers
Total Output
Marginal Product (output)
No workers, no sandwiches (no kidding!) 1 40
The first worker does it all 2
100 60
A second adds more than the first
Workers are needed for the output they can create, and therefore the revenue they can generate for a firm. Demand for workers and their skills will depend upon the demand for the product they make. This is called derived demand
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With employment of the: (CLICK)
FIRST WORKER: all tasks must be done alone (CLICK)
SECOND WORKER: specialisation and division of labour can be introduced, increasing the productivity.
Increasing Returns occur (the 2nd worker adds more to output than the first). (CLICK)
THIRD WORKER: further division of labour is possible, but diminishing returns set in (this worker adds less to output than the previous) (CLICK)
FOURTH WORKER and FIFTH WORKER: diminishing returns continue. 3
150 50
A third increases the total, but not by as much as the second 4
190 40
The trend continues 5
220 30

3. Demand for Labour
Demand for labour (workers) will be determined by the extra output they can create for a firm.
Demand for Labour W
W: Wages, the price of labour DL
QL: Quantity of Labour
DL: Demand for Labour
Demand for workers will be determined by the extra output they can create for a firm. The less they can add, the lower the pay rate a firm will be willing to pay.
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Hence, the demand curve for labour is downward sloping.
W the price of Labour: includes all forms of remuneration (wages, salaries, fees, etc)
QL Quantity of Labour: may be measured as number of positions/workers, or as number of hours
DL Demand for Labour QL

4. Supply of Labour
Supply of labour relates to the number both able and willing to work.
Supply of Labour QL W SL
QM: the maximum number ABLE to work
SL: supply of labour
Qm There are only so many people in the labour force, or who have the skills required for a specific job.
At low wage rates, few of these people would be WILLING to work (CLICK). A large number who are ABLE to work would remain VOLUNTARILY unemployed.
At a higher wage, more are willing. (CLICK) The opportunity cost has been raised (transfer earnings)
At a high enough wage, everyone able to work is now willing (CLICK) Further wage rises will not increase employment.
So the supply curve for labour is upwards sloping and becomes vertical at some point. (CLICK) QM

5. Equilibrium and Disequilibrium
Like any market, it will automatically seek equilibrium.
Labour Market QL W SL DL QM WE QE
Employment numbers can be shown (CLICK)
and the number that are VOLUNTARILY unemployed (CLICK), they are able but unwilling.
BUT
The market frequently is prevented from reaching equilbrium:
Minimum wages
Sticky wages
Union militancy
employed
voluntarily
unemployed

6. Equilibrium and Disequilibrium
Like any market, it will automatically seek equilibrium.
Labour Market QL W
At a wage rate above equilibrium … SL DL QM WE Q1 Q2 QE
Employment numbers can be shown (CLICK)
and the number that are VOLUNTARILY unemployed (CLICK)
BUT
The market frequently is prevented from reaching equilbrium:
Minimum wages
Sticky wages
Union militancy
employed
voluntarily
unemployed
involuntarily
unemployed