Summary ECS2604 - Labour Economics SUMMARISED NOTES.

ECS2604 - Labour Economics SUMMARISED NOTES. UNIQUE CHARACTERISTICS OF THE LABOUR MARKET LO2: Be able to describe the unique characteristics of the labour market THE SEVEN UNIQUE CHARACTERISTICS OF THE LABOUR MARKET o A product is not being bought but services of a person, a human being. o Principles of fairness, equity and humanness must be applied. o The services of the worker are being bought and not the worker therefore a contractual agreement is important in that relationship. o The market is characterized by great diversity o The individual worker changes over time o There is not one single market or clearing house e.g. JSE o The price of labour is complex 1.3 UNREALISTIC ASSUMPTIONS ON THEORY (IES) LO3: Understand why unrealistic assumptions are sometimes made in theory o Although at times these assumptions might appear to be rather unrealistic, they help us to better understand the key issue under discussion. © 2015Together We Pass. All rights reserved. pg. DISTINCTION BETWEEN A MOVEMENT ALONG a CURVE and a SHIFT of the CURVE o Movement along a laour demand/supply curve reflects what will happen to the number of workers demanded/supplied if the price of labour (wages rate) changes, ceteris paribus. o Otherwise only changes in wage rate will lead to movement along the supply/demand curve o A shift of laour demand/supply curve reflects what will happen to the whole labour demand/supply curve if one of the other determinants of workers demanded/supplied at each wage rate changes Some of Possible reasons for a change in supply: o New workers entering the market will shift the supply curve to the right o Impact of HIV/AIDS on labour force will shift the supply curve to the left o Non-monetary aspects e.g fringe benefits, job security etc will shift the supply curve to the right Some of Possible reasons for a change in demand: o a new substitute for labour becomes available e.g new technology- the introduction of ATMs resulted in a decrease in the demand for bank tellers (demand curve will shift to the left) o if the price of a substitute factor of production changes e.g if the price of machinery (capital) decreases, more workers will be replaced with machines (demand curve will shift to the left) © 2015Together We Pass. All rights reserved. pg. o a sharp increase in export orders (the demand curve will shift to the right) o if the demand for a certain product produced by the labourers decreases, labour demand will also decrease (demand curve will shift to the left) 1.4 IMPORTANT CHARACTERISTICS of the SOUTH AFRICAN LABOUR MARKET LO4: Be able to describe the important characteristics of the South African labour market o One of the main characteristics of the South African labour market is a chronic skills mismatch.  Where at prevailing wage rates, there is excess demand for skilled labour and an oversupply of unskilled labour.  The skills mismatch has its origins in the apartheid era. The education system for the non-white population, particularly blacks, constrained the acquisition of skills among the majority of the population  Unemployment is particularly concentrated among historically disadvantaged groups and is higher among the rural, female, uneducated, and young segments of the population o Several authors have argued that South Africa’s labour laws impose rigidities in the labour market that contribute to unemployment (Barker, 1999; Black and Rankin, 1998).  The argument is that the labour laws lead to higher wages than would otherwise prevail.  They also involve statutes to regulate working conditions that, while protecting worker rights, create a disincentive for firms to hire and fire workers THE TWO IMPORTANT FUNCTIONS OF LABOUR MARKET o Allocate human resources among alternative users o Distribute incomes THE OBJECTIVES THAT THE FUNCTIONING OF LABOUR MARKET SERVE o Growth o Equity o Efficiency o Social justice PROBLEMS THAT NEED TO BE ADDRESSED IN SOUTH AFRICA Briefly discuss the problems that need to be addressed in South Africa in order to ensure a successful labour market outcome. o POVERTY  specifically rural poverty o INCOME INEQUALITY  Interracial inequality has diminished while intra-racial inequality has increased. © 2015Together We Pass. All rights reserved. pg. o UNEMPLOYMENT  Particularly females and blacks o HIGH LABOUR COSTS AND LOW PRODUCTIVITY  The economy has been growing without growing of employment because of high labour costs. Where labour productivity has increased it has been at the expense of jobs STUDY UNIT 2 – THE SUPPLY OF LABOUR LEARNING OUTCOMES: i. Explain the labour force as the supply of labour ii. Explain the labour force participation rate iii. Discuss population and population growth iv. Discuss the total fertility rate v. Explain the impact of HIV/Aids vi. Discuss immigration, emigration and migrant labour vii. Explain the theoretical principles underlying the supply of labour 2. THE SUPPLY OF LABOUR 2.1 LABOUR FORCE LO1: Explain the labour force as the supply of labour LABOUR FORCE AS THE SUPPLY OF LABOUR o Refers to all those people who are working, whether for themselves or for someone else, as well as those who want to work and are looking for work, i.e unemployed people. TOTAL LABOUR FORCE OR ECONOMICALLY ACTIVE POPULATION (EAP) o Defined as the total number of people over the age of 15 years who present their labour for the production of economic goods and services, whether employed or not. DETERMINATS OF SUPPLY OF LABOUR: o Wage rate o Measured by labour force participation (the % of the working age population that is working or want to work) o Population size – labour force size o Skills level o education and training 2.2 LABOUR FORCE PARTICIPATION RATE (LFPR) LO2: Explain the labour force participation rate © 2015Together We Pass. All rights reserved. pg. LABOUR FORCE PARTICIPATION RATE o Is the percentage of the population of working age that furnishes its labour for the production of economic goods and services, whether employed or not. o in short it refers to the percentage of the population that is in the labour force LFPR= labour force Working age population X100 Labour Force = Number of Employed + Number of Unemployed 2.3 POPULATION AND POPULATION GROWTH LO3: Discuss population and population growth POPULATION o The total number of persons inhabiting a country, city, or any district or area. POPULATION GROWTH o The increase in the number of people that reside within a state or country. o In order to determine whether there has been population growth, the following formula is used:  Population growth = (birth rate + immigration) – (death + emigration) o A positive growth rate indicates that the population is increasing, while a negative growth rate indicates that the population is decreasing o Reflects how the size of the population is changing over time. 2.4 FERTILITY RATE LO4: Discuss the total fertility rate TOTAL FERTILITY RATE (TFR) o Is the average number of children born alive to a woman in her reproductive years (15 to 49) o There is a reduction in fertility rate of all population groups in S.A. In S. A. the ideal TFR has been set at 2.1 children per woman by the year 2010. o This is called the replacement level or breakeven point i.e. where the fertility rate and the mortality rate are equal so that there is no increase or decrease in the population. o The decline in the TFR and population growth rates as a whole can be explained by the so called “theory of demographic transition” FACTORS INFLUENCING FERTILITY RATES o Rural residency – children for labour o Poverty – children for security in later life © 2015Together We Pass. All rights reserved. pg. o Low status of women – succumb to social and cultural pressure to have children THEORY OF DEMOGRAPHIC TRANSITION VARIOUS STAGES OF THE DEMOGRAPHIC TRANSITION o FIRST STAGE  It is characterized by high birth rates and high mortality rates.  Because both (birth and death) are very high, the population may increase slowly or not at all  It is associated with pre Modern times  In some instances the high birth rates could be because of strong cultural traditions and strong family ties, be at relatively moderate levels.  While high death rates could be due to lack of knowledge of disease prevention and cure, occasional food shortages etc o SECOND STAGE  It is characterized by a steep decline in mortality rates, particularly among the very young, because of improved health services, improved water and sanitation systems, and better medical care.  It is associated with urbanizing or industrializing  Birth rates may increase because of a breakdown in cultural traditions and family life. This result is a sharp increase in the natural rate of population growth.  The third stage requires sharply declining birth rates, making it difficult for some less developed countries to move from the second stage.  Many of the least developed countries today are in Stage 2. © 2015Together We Pass. All rights reserved. pg. o STAGE THREE  It is characterized by low fertility and low mortality rates.  It is associated with mature industrial  It has been found that birth (fertility) rates start declining only under certain circumstances, and these relate especially to improved living standard.  Most developing countries are in Stage 3. o STAGE FOUR  It is characterized by stability and at this stage the population age structure has become older  It is associated with post industrial  In some cases the fertility rate falls well below replacement and population decline sets in rapidly  Most developed countries are in Stage 4. o STAGE 5  A possible of stage 5 would include countries in which fertility rates have fallen significantly below replacement level (2 children) and the elderly population is greater than the youthful population. DESCRIBING THE SOUTH AFRICAN SITUATION ACCORDING TO THIS THEORY o The whites in South Africa made the transition to this stage in the 1950s; the Indians/ Asians in the 1960s; the Coloureds in the 1970s and the Africans in the 1990s. 2.5 IMPACT OF HIV/AIDS LO5: Explain the impact of HIV/Aids The following include some possible consequences of HIV/Aids: o DEMOGRAPHIC IMPACT  Life expectancy expected to drop to 47 years in 2015.  This will lead to sharp drop in the growth of the total population o DEPENDENCY RATIO  Increase mortality in the 25 to 40 years age group  Increase in the number of orphans  Elderly lose adult children and support structure o SUPPLY OF LABOUR  Reduce labour force thus leading smaller labour force  Affecting the key productive ages of 20 to 40 years o EMPLOYMENT  Unemployment might not increase but not likely to decrease  Economic growth not high enough to reduce unemployment o DEPLETION OF HUMAN CAPITAL  Personal and economic returns from years of investment in schooling and higher education will be cut off before any returns can accrue to the individual, family or society. o POVERTY AND INEQUALITY