Question

DQ #4 We can say there are three labor markets. The unskilled labor market (manual laborers) tends to be the most competitive as it has no entry barriers and its wages tend to be the lowest. The semi-skilled labor market (electricians, machinists, assembly line workers) is somewhat less competitive and has some moderate entry barriers (apprenticeships, master's licenses, unions) where its wages tend to be higher than in the unskilled labor market. The highly skilled labor market (doctors, economists, lawyers & other professionals) is the least competitive and it has the highest entry barriers where wages tend to be the highest. Explain in 200 to 300 words how the availability of substitutes for workers in these types of labor markets influence market activity and their equilibrium outcomes of wages and quantities of labor employed. The wage elasticity of labor demand plays a role similar to that with the price elasticity of demand in product markets. To reply, click on the Reply box below and type your responses in that box. When you are finished, make sure to click the Post Reply button.

Answer 1

Introduction: -

Even with significant investment to improve the quality of labour force, there will always be a difference among the type of labour force available in the market place.

According to the demand and supply and the level of expertise present in the market, we can categorize people into different groups within the labour force and understand flexibility in wages and how the concepts of demand and supply tend to fit in when looking at the labour force.

The labour force in general can be sub divided into 3 categories which can be decided on the level of substitutes available and their equilibrium wages and quantities of labour employed.

Explanation

Markets can be divided into 3 types as per the case study and general theory of labour and wages. These are unskilled, semi-skilled and skilled.

If the amount of labour force available is relatively higher, the equilibrium prices would be relatively lower. This is because supply is greater than demand for these categories of workers. For example, Low skill employees receive relatively lesser salary however are easy to negotiate with and find. This is because their supply is in excess of the demand. There are numerous unemployable people who are ready to work for whatever price they can get. The equilibrium price thus remaining very low.

However, the entire game changes when it comes to skilled labour force. The equilibrium price is not as flexible and you need to provide people with sufficient wages for them to come to you. The supply in short is way short of the demand because of the category of specialization. Each industry may have different equilibrium prices depending on demand and supply however there is no comparison with unskilled labour type. The equilibrium prices thus are set higher because people will simply not work and will switch over to other competitors or markets if you do not provide them higher salaries.

Further, semi-skilled labour force is somewhere in between the two. They are in between and demand is moderate and so is supply the prices are therefore set somewhere in the middle and are neither too low nor too high.

Conclusion: -

Thus, we can say that the wages are decided on the basis of degree of competition in the market place. Higher the level of competition and lesser the skill wages would be lower.

For example, A doctor fetches many times the salary of a plumber simply because he has the expertise and qualification required to do the job. Unless the equilibrium price is set high enough the market in itself would fail. On the contrary plumbers are easy to find and you may set a price low enough that you can get the job done.

Please feel free to ask your doubts in the comments section.