What this lesson teaches
I can explain and draw how labour demand and supply, trade unions and minimum wages set wages.
Syllabus K343, 3.3.2. Wage determination: influences of the demand for labour and the supply of labour; trade unions and their relative bargaining power; government policy, including national minimum wage (NMW); drawing and interpretation of diagrams that illustrate the effects of: changes in demand and supply in the labour market, national minimum wages
Make a guess
More people want to use delivery apps. What happens to the demand for delivery riders?
- It rises, because riders are needed to deliver the food.
- It stays the same, because riders choose when to work.
- It falls, because apps replace the workers who used to deliver.
Show the answer
It rises, because riders are needed to deliver the food.
Demand for labour is derived from demand for the product. More orders mean firms need more riders.
The wage is the price of labour, set where the demand for labour from firms meets the supply of labour from workers.
In a labour market, firms demand workers and people supply their labour. The wage rate is the price of labour. Like any price, it settles where demand equals supply.
The demand for labour is a derived demand: firms want workers because consumers want the goods they make. Demand for labour rises when demand for the product rises, when workers become more productive, or when machines that could replace workers become dearer.
The supply of labour to a job rises when more people have the right skills. It also rises when the job becomes more attractive, or when more people can reach the workplace. It falls when training takes many years or the work is unpleasant or risky.
A rise in demand for labour raises the wage and employment. A rise in supply lowers the wage and raises employment.
Sort these
Think about the labour market for nurses. Sort each event by what it does.
Groups: Demand for nurses rises, Supply of nurses rises, Supply of nurses falls.
- New hospitals and clinics open across the island.
- Many nurses quit because of long shifts and burnout.
- Singapore's population ages and needs more care.
- The required nursing training is lengthened by two years.
- Hospitals recruit trained nurses from overseas.
- More students enrol in nursing degrees and graduate.
Show the answer
Demand for nurses rises
- New hospitals and clinics open across the island. Each new site needs nursing staff, so the demand for nurses shifts right.
- Singapore's population ages and needs more care. Nurses are needed to give that care, so hospitals want more nurses at every wage.
Supply of nurses rises
- Hospitals recruit trained nurses from overseas. Extra workers join the market, so more nurses are willing to work at every wage.
- More students enrol in nursing degrees and graduate. More people have the skills to work as nurses, so supply shifts right.
Supply of nurses falls
- Many nurses quit because of long shifts and burnout. Fewer people are willing to do the work, so supply shifts left.
- The required nursing training is lengthened by two years. It takes longer to qualify, so fewer new nurses enter for a time.
- Wage rate
- The price of labour.
- Derived demand
- Firms demand labour because consumers demand the product.
- Raises labour demand
- More product demand, higher productivity, dearer machines.
- Raises labour supply
- More skilled people, better conditions, easier access.
Worked example: Why app developers' wages rose
Suppose demand for mobile apps grows quickly.
- Derived demand: firms need more developers to build apps, so demand for developers rises.
- Supply: training a skilled developer takes years, so supply rises slowly.
- Result: demand shifts right against a slow-moving supply, so the wage rises.
- Over time: high wages attract more people into training, increasing supply.
Watch out for this
The demand for labour comes from workers who want jobs.
Workers supply labour. Firms demand it, because they need workers to produce goods for their customers.
Check your understanding
New rail links let many more people reach a business park. What happens in its labour market?
- Supply of labour falls as workers move away: the wage rises.
- Supply of labour rises: the wage falls and employment rises.
- Demand for labour rises as firms move in: the wage rises.
Show the answer
Supply of labour rises: the wage falls and employment rises.
Right. More people can now offer to work there.
Check your understanding
More people train as nurses, so the supply of nurses increases. Demand for nurses does not change. What happens in the market for nurses?
- The wage falls and employment falls
- The wage rises and employment falls
- The wage falls and employment rises
- The wage rises and employment rises
Show the answer
The wage falls and employment rises
Right. Supply shifts right, so the wage falls and more nurses are hired at the lower wage.