SUPPLY AND DEMAND:
LABOR SUPPLY,
POPULATION GROWTH AND
WAGES
LABOR SUPPLY
the labor supply is the total hours (adjusted for intensity of
effort) that workers wish to work at a given real wage rate. It
is frequently represented graphically by a labor supply
curve, which shows hypothetical wage rates plotted
vertically and the amount of labor that an individual or group
of individuals is willing to supply at that wage rate plotted
horizontally.
PHILIPPINES LABOR FORCE PARTICIPATION
RATE
The unemployment rate in the Philippines dropped to 5.2 percent in July 2022
from 7.2 percent in the same month a year earlier, as the economy recovered
further from the coronavirus disruptions. The number of unemployed was at
2.60 million, down from 3.23 million in July 2021. Meantime, the number of
employed came in at 47.39 million, jumping from 41.67 million the year before.
The labor force participation rate increased to 65.2 percent from 59.4 in July
2021. In June 2022, the jobless rate was at 6.0 percent
LABOR FORCE PARTICIPATION RATE IS
ALSO DEPENDENT ON THE FOLLOWING
FACTOR:
Size and age of distribution of the population
The Effect of school enrollment on the young people
The role of women in the economy
MAKING SENSE OF WAGE THEORY
Thomas Malthus was an 18th-century British philosopher and
economist noted for the Malthusian growth model, an exponential
formula used to project population growth.
The theory states that food production will not be able to keep up
with growth in the human population, resulting in disease,
famine, war, and calamity.
A noted statistician and proponent of political economy, Malthus
founded the Statistical Society of London.
ADAM SMITH’S SUBSISTENCE
THEORY
Adam Smith was an 18th-century Scottish economist,
philosopher, and author who is considered the father of
modern economics. Smith argued against mercantilism and
was a major proponent of laissez-faire economic policies. In
his first book, The Theory of Moral Sentiments, Smith
proposed the idea of an invisible hand—the tendency of free
markets to regulate themselves using competition, supply and
demand, and self-interest.
THE THEORY OF SUBSISTENCE IS ALSO
CRITICIZED BY ECONOMIST ON VARIOUS
GROUNDS:
It may provide a general rule for detemination of wages for all
countries.
Assumes that an increase in the wage level = increase in
population
Focuses on customs and habits of people to determine wage level
Presents a general view for all types of works
Considers only the Supply of Labor
DAVID RICARDO'S SUBSISTENCE
THEORY
Subsistence theorists argued that the market price of
labor would not vary from the natural price for long: if
wages rose above subsistence, the number of workers
would increase and bring the wage rates down; if wages fell
below subsistence, the number of workers would decrease
and push the wage rates up.
DAVID RICARDO'S SUBSISTENCE
THEORY
Karl Marx estimated that it was not the pressure and the population that drove
wages to subsistence level but rather the existence of large numbers of
unemployment workers.
Marx held that, in capitalism , labor was merely a commodity : in exchange for
work , a laborer would receive a subsistence wage.
Marx speculated, however ,that the capitalist could force worker to spend more
time on the job than was necessary for earning this subsistence income , and the
excess product – or surplus value – thus created would be claimed by the owner.
WAGE FUND THEORY
According to J.S Mills “Wages depend upon the demand and
supply of the proportion between population and capital.”
The Level of Wages Formula:
Level of Wages = Wage Fund/Number of Employees
Wages [directly proportional] to wage fund, wages [inversely
proportional] to the number of employees. Therefore, wages
increases when wage fund increases or number of employees
decreases
WAGE FUND THEORY – IS ALSO
CRITICIZED BY MANY ECONOMIST ON
THE FOLLOWING GROUNDS:
It does not provide a clear view whether the wages are paid through
capital reserved or from the revenue generated by selling products.
Generally, in short term, wages are paid from the revenue generated by
selling products. However, in long term, wages are paid from the capital
reserved.
It presents the concept of keeping a certain amount for wage fund, which
is not true in the real world. This is because there is no as such fund,
which is fixed for providing wages.
It calculates the level of wages by dividing wage fund with number of
employees, which is not an appropriate method of determining the wage
level.
RESIDUAL-CLAIMANT THEORY
It was originated by the American economist Francis A. Walker ,
held that wages were the remainder of total industrial revenue
after rent, interest , and profit were deducted.
BARGAINING THEORY
The bargaining theory of wages holds that wages, hours,
and working conditions are determined by the relative
bargaining strength of the parties to the agreement.
Smith hinted at such a theory when he noted that
employers had greater bargaining strength than employees.
MARGINAL-PRODUCTIVITY
THEORY AND ITS CRITICS
As applied to wages, the marginal-productivity theory holds that
employers will tend to hire workers of a particular type until the
contribution that the last (marginal) worker makes to the total
value of the product is equal to the extra cost incurred by the
hiring of one more worker. The wage rate is established in the
market through the demand for, and supply of, the type of labour
needed for the job. Competitive market forces assure the workers
that they will receive a wage equal to the marginal product
HUMAN CAPITAL THEORY
In 1960’s economist Gary Becker and Theodor Schultz pointed
out that education and training were investments and could add
up to productivity.
According To human capital theory, an adequate investment in
people will result in growing economy. For example:
Some countries offers free college education out of realization
that a more highly educated population tends to earn more and
spend more , thus stimulating the economy.
