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Labor market and wage

Wages forms a large part of the income of the consumer. Wages understood in the broad and narrow sense.

Distinguish between nominal wages and real.

Under nominal wage means the sum of money that gets paid employees for their daily, weekly, monthly labor. Largest nominal wages can judge the level of earnings, income, but not on the level of consumption and wealth.

Real wages - is the mass of vital goods and services that can be bought for the money. It is in direct proportion to the nominal wage and the price level of consumer goods and services.

Labor supply curve shows that an increase in real wages increases the supply of labor, and at lower labor supply decreases (Fig. 13). The total supply of labor in society is dependent on many factors that determine the quality and quantity of services work, among which the most important are the total population of the country and the share in it of the economically active population, the average hours of work, vocational qualification structure of employees, etc.

W/P W/P

LD LS

L L

Fig. 12. The demand curve for labor Fig. 13. Labor supply curve

Combining both graphs, the demand curve and the supply curve of labor, can be analyzed in more detail the situation in the labor market. Particular attention should be paid to the point E. This point on the graph represents a certain level of real wage W / PE and given this level of labor supply LE. At point E, the demand for labor equals supply of labor, which means that the labor market is in equilibrium, i.e. all businesses are willing to pay the wages W / R E, is on the market the necessary amount of labor, their labor demand satisfied in full. Thus, the point E - the position of full employment.

In case of excess real wage equilibrium level W/P2 labor supply LS2 exceeds demand LD2 on the value LD2-LS2. In this case, not enough jobs for everyone who wants to sell their labor for wages W/P2. There is an excess supply of labor, measured segment LD2-LS2 on the horizontal axis (unemployment).

W/ P LD LS

unemployment

W/P2

W/PE Е

W/P1