In a competitive labor market, the demand for and supply of labor determine the
equilibrium wage rate and the equilibrium level of employment. They work together to
create relationship between employers, employees, and wages. The demand of labor is
when a firm demands workers for wages and supply of labor is how many hours an
employee will work. An example would be how we bring people in to my work. Certain
time and seasons the supply of labor dries up even though the demand is high and the
wages have improved and we end up Struggling to retain good quality workers and even
with a competitive wages. The demand for labor in any market is obtained from the
manufacturing firms who happen to be use labor as input in the production process and in
a competitive set up the general expression for labor demand is,
MPL = w/P , which interprets as Marginal product of labor to be identical to the real wage.
Although most theories claim, that in the long run labor supply is given and thus vertical
in the short run it's upward sloping. The demand curve is downward sloping as an increase
in the per unit cost of hiring an additional labor would imply that firm's now hire less
labor.
Now at the intersection of the labor supply and labor demand curves we obtain the
equilibrium real wage and level of employment in the market. The demand for labor in any
market is obtained from the manufacturing firms who happen to be use labor as input in
the production process and in a competitive set up the general expression for labor demand
is,
MPL = w/P , which basically the Marginal product of labor has to be identical to the real
wage.
In a competitive labor market, the demand for and supply of labor determine the
equilibrium wage rate and the equilibrium level of employment.A firms demand for labor
depends on the marginal product of labor and the price of the good the firm produces. The
supply curve for labor depends on variables like population and worker preferences.Wages
are determined by supply and demand. An increase in demand or a reduction in supply
will raise wages. An increase in supply or a reduction in demand will lower them. Wages
can further be determined by comparing demand and supply. An example that
demonstrates this relationship is a recession because overall economic output declines. This
will cause people to be laid off and companies to make fewer sales.
The way I see it there is a very strong relationship between wage rate and quantity of labor
force employed. From the information I can gather it makes complete sense on why that
would be. When you look at it from the standpoint of businesses are not only looking to
serve their customers but also to make a profit you begin to see the big picture. You don't
want to employ too many workers that you only break even or begin to lose revenue from
having to pay your workforce.
An example that I don't see covered in our textbook is a moving company. On the side, I
move people to make a little money. I pick enough personnel based on the number of
goods we need to move, the expected time needed to move, and the equipment needed to
complete the job. I think about fuel costs and the distance of which we will be traveling.
Also if any setup will be required at a different location. Now in my quote, I also keep in
mind that I have no insurance at the moment.
There is a strong correlation between the idea of demand and how it affects the wages and
quantity of labor. Demand determines how much of a product is needed to fulfill the needs
of consumers. An increase in demand, and in turn price, can result in an increase in labor.
The most important thing to remember in order for a company to maximize their profit is
that their marginal revenue product must equal or must exceed the wages paid to the
workers. If it is not, then the company will be losing money and could be forced to
decrease wages or lay off workers. On the other hand, if it increases then wages for those
workers could increase.
I worked in human resources at Target during the COVID pandemic. It was an interesting
time because even though there was a pandemic and people were asked to stay home our
store had never been busier. This was due to the fact that we had cleaning supplies, health
equipment, and groceries which was all essential at that time. Because we were so busy we
actually had to hire quite a bit of people to meet the needs of the influx of guests. Target
also increased their minimum wage to help get people to apply and to incentivize current
employees to continue working. We did not over staff because it would not make financial
sense to hire too many people.
When the supply equals the demand, the labor market reaches equilibrium. This creates a
competitive wage rate w*, also called equilibrium wage of labor. Each firm will hire
employees up to the point that the marginal product of labor is equal to this competitive
wage rate. Equilibrium means equal or have some kind of balance and this balance has to
be in everything. As there should be a balance in demand and supply of the product to
have the balance in flow of product and price the same way there has to be a balance in
Wage rate and employment. Suppose the wage rate is higher than the expectation of the
hiring team will be more means only bachelor's degree will not be enough, the hiring team
will want the candidate to be MBA or holding some more degrees. Due that there will be a
shortage of such candidates which can then become a problem for all.
In the same way if there are too many candidates with higher degrees and there are not
many jobs opening for such candidates is also a problem as then such candidates will lose
hope. There has to be balance between both candidates with or without degree getting the
fixed minimum pay also helps to maintain the balance and also have all the basic needs
fulfilled.
During recession there are times when people do have jobs and become helpless and due
to which there will be theft and all different types of violence as there is too much stress.
The balance in everything helps to have the perfect economy and that can help in happy
people and happy country.
The equilibrium wage rate is the intersection of the supply and demand for labor meet.
This is where the cost of hiring an employee is equal to the sales revenue of their output.
The equilibrium level deals with the quantity of employees that an employer can hire to
where it is cost effective. The two will always complement each other as employers always
have to have a balance. Right now is a difficult time for all businesses. As the supply
shortage for labor is currently active due to situations that happened during the pandemic.
Many places have had to raise their rate of employment. But in order to meet those extra
demands caused by the higher wages companies are lowering the quantity of employees
they are hiring. I have interviewed multiple people from CVS and they have recently
changed the salesfloor coverage to offset the higher wages they are paying. They are
staffing their stores with only 2 people during the week to control labor costs. During this
current time, our company has started prevailing wage surveys. We reach out to similar
business to find what they are hiring at in our area and take that average and make it our
stores prevailing wage.
Demand and supply determine wage rate and the quantity of labor in a competitive labor
market. Employers will hire less employees if the wage rate is higher.Therefore if the
wages decrease this will increase the amount of employees an employer will hire.
During the pandemic many people were lay off. The restaurant industry had so many
restriction that they were left with no choice but to let people go. These people found other
ways of making money and many of them did not go back to their previous employers.
Restaurants like many other employers are sort staffed and are offering higher wages to
attract new employees. California had very stick covid regulations for restaurants, at one
point many restaurants were only offering takeout. Employers could not afford to pay all
their employees. Now that those restrictions are less or almost gone, people are out more
and restaurants are busy again. Employees are needed and wages are a little better now.
My aunt was a server who was laid off. She managed to figure out how to live her life
with her husband where she no longer needs to work. Her previous employer is always
contacting her to go back, offering better pay and better schedules. Overall when
employers need employees they will do what needs to be done to get them onboard.
