March 2025

The elasticity of demand for labour refers to the responsiveness of the quantity of labour demanded by employers to a change in the wage rate. It plays a key role in wage-setting decisions, employment levels, and labour market policies. A more elastic demand means employers are highly sensitive to wage changes, while inelastic demand means they are less affected. 1. Definition and Formula Elasticity of demand for labour is calculated as: Elasticity (Ed) = (% change in quantity of labour demanded) ÷ (% change in wage rate) If Ed > 1: Demand is elastic (high sensitivity) If Ed < 1: Demand is inelastic (low sensitivity) If Ed = 1: Unitary elasticity 2.… Read more

The substitutability of capital for labour refers to the extent to which machines, equipment, and technology can replace human workers in the production process. This concept is central to decisions about automation, cost-efficiency, and the structure of employment in modern economies. The degree of substitutability depends on the nature of the job, cost of inputs, and technological capabilities. 1. Definition and Concept Capital (e.g., machines, AI systems) can replace labour when it performs the same function more efficiently or cheaply.… Read more

Labour skills refer to the knowledge, competencies, and abilities workers possess to perform tasks efficiently. Specialisation of labour is the process by which individuals focus on a narrow range of tasks or roles in which they develop proficiency. Together, these concepts play a key role in improving productivity, innovation, and economic efficiency across all sectors of the economy. 1. Types of Labour Skills Unskilled Labour: Performs tasks that require little to no formal training (e.g.,… Read more

Labour efficiency refers to the ability of workers to produce maximum output with minimum effort, time, and cost. It reflects not only physical output but also the quality, speed, and effectiveness of work. Improving labour efficiency is crucial for enhancing productivity, reducing costs, and achieving sustainable economic growth. 1. Definition of Labour Efficiency Labour efficiency measures how effectively labour inputs are used to generate output. It considers both quantitative output (units produced) and qualitative factors (accuracy, innovation, service quality).… Read more

The demand for labour is a derived demand, meaning it depends on the demand for the goods and services that labour helps produce. Employers decide how much labour to hire based on a variety of economic, technological, and institutional factors. Understanding these influences helps explain employment trends, wage levels, and labour market dynamics. 1. Wage Rate There is an inverse relationship between the wage rate and quantity of labour demanded. Higher wages increase labour costs, prompting firms to hire fewer workers or substitute capital for labour.… Read more

Labour supply refers to the availability of workers willing and able to work at different wage levels. However, in reality, the supply of labour is far from perfect. Various structural, social, and economic imperfections limit the flexibility, mobility, and responsiveness of the workforce, resulting in mismatches between job openings and job seekers. 1. Geographical Immobility Workers may be unwilling or unable to move to where jobs are available due to housing costs, family obligations, or lack of transport.… Read more

The success of trade unions is judged by their ability to protect workers’ rights, secure fair wages, and improve working conditions. Their influence varies across countries, industries, and historical periods, but in many cases, unions have been instrumental in shaping labour standards, reducing inequality, and promoting workplace democracy. 1. Higher Wages and Better Benefits Unionized workers typically earn higher wages than non-unionized workers in similar roles. Unions often secure additional benefits such as healthcare, pensions, paid leave, and bonuses.… Read more

Minimum wage refers to the legally mandated lowest hourly, daily, or monthly wage that employers are allowed to pay their workers. It is a crucial labour policy tool aimed at preventing exploitation, reducing poverty, and promoting fair compensation—especially for low-skilled and vulnerable workers. Minimum wage laws exist in most countries and are regularly reviewed to reflect economic conditions. 1. Objectives of Minimum Wage Laws Protect Low-Income Workers: Ensure a basic income that meets essential needs such as food, housing, and healthcare.… Read more

National wage agreements are large-scale, centralized arrangements where representatives of trade unions, employers’ organizations, and sometimes the government negotiate and set general wage levels across entire sectors or the economy. These agreements aim to promote industrial peace, economic stability, and equitable income distribution through a structured and collaborative approach to wage setting. 1. Objectives of National Wage Agreements Ensure consistent wage increases across industries and regions. Control inflation through agreed wage moderation.… Read more

Wage increases are essential for improving living standards, but when they outpace productivity or are widespread across the economy, they can contribute to inflation. The relationship between wage growth and inflation is complex, influenced by demand, supply, productivity, and policy responses. Economists closely monitor this link to balance fair income growth with price stability. 1. Cost-Push Inflation Occurs when rising wages increase the cost of production for firms. Firms pass these higher labour costs onto consumers in the form of higher prices.… Read more