Labour is the intellectual and physical effort in the production process, wages are the income of employees, the prices of labour relative to other inputs, and the cost to employers of using labour, these will affect aggregate demand and demand inflation as well as the cost of capital.
The demand for labour is influenced by the level of economic activity, the productivity of labour and the relative costs of labour relative to capital, whilst the supply of labour refers to proportion of the working age population available to work, the participation rate and attitudes to work, this interaction with calculate the wage levels.
Governments intervene through the use of macro and microeconomic policies
Microeconomic factors on demand such as:
· The nature and size of the industry (larger industries tend to hire more workers)
· The pattern of consumer demand and output (a change in consumption will change the demand for labour to create goods to consume)
· The wage rate and conditions of work (labour demand will be responsive to lower wage rates and less necessary working regulations, vice versa)
· The productivity of labour (rising levels of productivity will result in higher demand)
· The rate of labour/Capital substitution (if the cost of capital is higher, labour demand will grow)
· The Rate of structural change and entrepreneurial expectations (if entrepreneurs expect consumer demand to increase, then there will be higher demand for labour)
· Changes in total economic activity(if there is high economic activity, resulting in a higher consumption and trade of goods and services thus, more demand for labour, vice versa)
· The productivity of labour (rising levels of productivity in the economy will lead to greater…)
· The general wage rate (if the wage rate (agreed or award wage) for labour is low then it is less likely to be substituted for capital, hence, more employment)
· Government industrial relations policies (if the government instils policies such as the jobs and training compact in 2009, labour will be promoted to employers/ lowering wages)
· The level of industrial disputation (caused by failure of trade unions/negotiators which can result in lower demand for labour)
Factors of supply, Microeconomics:
· The wage rate and other incentives (the higher the wage employers offer the more labour will be influenced to work, others may include benefits such s leave loading, bonuses and commissions and better working conditions such as a healthy, safe workplace compared to other firms)
· Education and training qualifications (more qualified position require more experience in Edu and skill thus being of shorter supply than menial low wage jobs)
· Geographical mobility (the ability of worker to move from one job location to another, taking advantage of higher wage rates and more opportunities)
· Occupational mobility (the ease of a worker moving occupations/industries, higher rates will increase the...