Lobour Market Policy Essay Example | Topics and Well Written Essays - 1750 words

Lobour Market Policy - Essay Example The understanding of "labor market" or more appropriately, "labor markets" involves the study of the dynamics of the market vis--vis the demand and supply of various kinds of labor. A 'labor market' may be defined as the number of people employed plus the number of unemployed but seeking work. The supply of labor depends upon variables such as natural population growth, new entrants, immigrants, retirements, increased female participation, de-industrialization, skills shortage and surpluses, education and training, flexibility, and wage determination. The 'level of employment' is the proportion of such employed in the total labor market. The levels of supply and demand in the 'labor market', just as in 'markets' for any other goods depend on the availability of work, the availability of labor and their skill compatibility. However the main difference between the two is the function of supply and demand in setting the price and quantity. Whereas in the case of goods, increases in prices result in increased production for the demand to be satisfied, this does not happen in the case of labor for there are limitations of time available for labor and increased wages may result in less supply of labor as workers may tend to utilize increased earnings to indulge in leisure activities. Some economists believe that the laws of supply and demand apply more to certain segments of the markets only where workers change job types corresponding to changing wage rates.Segmenting labor markets The 'agency theory' of labor management purports that the principals (owners or managers) have to develop ways to monitor and control the activities of their agents (staff); that the principals may have problems in ensuring that work is carried out according to instructions and that therefore it is necessary to clear up ambiguities by setting objectives and monitoring performance. (Armstrong 2003, p. 281). However Armstrong suggests that the theory "looks at the employment relationship purely from management's point of view and regards employees as objects to be motivated by the carrot and stick." He calls it a "dismal theory, which suggests that people cannot be trusted." (Armstrong 1996, cited in 2003, p.281). The neoclassical theory of labor markets assumes that firms aim to maximize their profits with minimal costs; the number of buyers (firms) and sellers (workers) is high; there is no collective bargaining that there is no monopsony of power (exploitation of labor because of large supply and low demand) and that the firm is a wage taker. In a perfect world, with no bargaining forums like trade unions, labor markets may be 'competitive'. This means that the workers and employers have information about each other and that there are no transaction costs. On the other hand, job search, training and the need to gain experience to switch jobs are variables that determine supply and demand in a normal labor market. However the glaring lacuna of this theory is that it assumes that labor is homogeneous which means that all workers turn out equal amount of work and that there are no differences in skills and experience of workers. This is demonstrated by the study of Hipple and Stewart (1996), w hich highlights the wide variations in the