The labor market is made up of various stakeholders. They include the workers and the employers. The former are the sellers, while the latter are the buyers. Their interaction creates supply and demand in the labor market. The nature of this engagement determines the wage paid to the workers. For example, when demand is higher than supply, the wages increase. On the other hand, when supply exceeds the demand, there is a glut, which leads to reduced prices. A number of factors affect the expansion or reduction of the labor market. The supply of this commodity also varies with time.
In this paper, the author will examine supply and demand of labor in the market. To this end, the factors affecting this market will be analyzed. In addition, the forces that determine wages in the labor market will be identified. The factors affecting the short term and long term demand for labor will also be discussed. In addition, the author will look at the impact of normal market mechanisms, legislations, and negotiations on this phenomenon. Finally, the effects of monopsony on wages in the labor market will be assessed.
Factors that Affect Supply and Demand for Labor in the Market
Demand and supply of labor in the market is affected by a number of elements. One of the major factors that affect this shift is wages. The wage rate determines whether people will sell their labor in the market or not (Budd, 2010). In most cases, when wage is high, workers are more willing to sell their labor. The population of people in a certain region also affects the demand and supply of this commodity. An increase in population means that there will be a rise in the supply of labor (Budd, 2013). Low population leads to a decline in the supply of labor. As a result, demand rises (Slaughter, 2001).
Legal working age also affects the demand and supply of labor. When the figure is decreased, the supply goes up. The development reduces the demand for this commodity (Blau & Kahn, 2006). In most cases, certain educational requirements must be met. The prerequisites may prevent people from entering into different labor markets. A reduction in the number of such requirements can lead to an increase in the supply of labor.
How the Demand and Supply Forces Determine Wages in a Given Labor Market
The forces of supply and demand affect the wages paid in a particular labor market in different ways. Demographics can either lead to an increase or decrease of salaries. Low population density within a certain geographic area will lead to an increase in the demand for labor (Bound & Holzer, 2000). The increased demand will push the wages up. A high population density will cause an increase in the supply of labor. As a result, demand will go down. A decrease in demand will lead to a reduction in the salaries paid to the workers (Budd, 2010). If the working age is reduced, there will be more people looking for employment. More people in the market will lower the wages paid (Autor, 2001). If the number of workers in the labor market is low, wages will increase. A reduction in the educational and other requirements needed for employment will allow many people to join the labor markets. The move will lead to reduced wages because of the resulting high supply. The scenario will apply to different types of jobs.
Factors that Affect the Demand for Labor over Time
Short and long term demands for labor may be affected by several factors. The first determinant is capital. Capital can affect the short-run demand for this commodity. The resources available to a given firm determine the wages it is willing to offer (Author, 2001). If the capital outlay is small, the company will need to reduce the number of workers to meet its short term obligations. Long term demand for labor may be affected by quality. The commodity can be good or bad (Budd, 2013). To maximize profits in the future, companies tend to invest in quality labor.
Normal Market Interactions, Minimum Wage Legislations, and Collective Bargaining in the Labor Sector
The three factors have impacts on the labor market. The elements prevent the exploitation of the weak in different employment sectors. Employees choose where to work based on the nature of wages offered by employers (Blau & Kahn, 2006). Collective bargaining is especially important in cases where the minimum wage laws do not exploit workers. Most countries have minimum wage legislations that ensure that employees are paid according to the hours they work.
The Impacts of a Monopsony on Wages in the Labor Sector
Monopsony is a market situation where there is only one buyer. There could be many producers depending on a single consumer. The phenomenon affects the establishment of wages in the market by lowering the rates (Slaughter, 2001). Workers in a monopsonic firm will receive wages that are less than those of others in the marketplace.
References
Autor, D. (2001). Wiring the labor market. Journal of Economic Perspectives, 15(1), 25-40.
Blau, F., & Kahn, L. (2006). The US gender pay gap in the 1990s: Slowing convergence. Industrial & Labor Relations Review, 60(1), 45-66.
Bound, J., & Holzer, H. (2000). Demand shifts, population adjustments, and labor market outcomes during the 1980s. Journal of Labor Economics, 18(1), 20-54.
Budd, J. (2010). Labor relations: Striking a balance (3rd ed.). New York: McGraw-Hill Irwin.
Budd, J. (2013). Labor relations: Striking a balance (4th ed.). New York: McGraw-Hill Irwin.
Slaughter, M. (2001). International trade and labor-demand elasticities. Journal of International Economics, 54(1), 27-56.