Labor is an essential component of various enterprises' and organizations' production processes. As a result, labor demand is a determinant in organizations' and institutions' need for commodities and services. Individuals with various talents, knowledge, and experiences make up the national and worldwide labor pool. Furthermore, factors such as income level, available work opportunities, and competitiveness; location and employment terms all have an impact on the labor market.
Notwithstanding the economic growth forecasts, a microeconomic issue of declining worker participation raises concerns. The population increase in the United States is insufficient to cover the voids created by retiring baby boomers. In addition, the economic growth is yet to attract workers that lost their jobs during the recession. This is an indication that there is demand for labor in the United States job market. The challenge arises in making people interested in the current jobs given that wages have not shifted upwards and have continued to stagnate.
Labor Statistics
According to the United States Department of Labor, (2017), there have been significant improvements in the labor market as indicated by an increase in the number of people that are employed and a reduction in the unemployment rate.
Table 1: Employment Situation Summary (Source: United States Department of Labor)
Category
February 2016
February 2017
Labor force
158.888 million
160.056 million
Participation rate
62.9%
63%
Employment-population ratio
59.8%
60%
Unemployment Rate
4.9
4.7
The U.S Bureau of Labor Statistics indicates that by the end of January 2017, there is a 5.6 million job opening available. During the same time, there were 5.4 million people that were newly hired and 5.3 million separations indicating that these people were either fired or quit their jobs. In view of the separation figures, 2.2% represented individuals that quit their jobs, whereas 1.1% were laid off or discharged from their roles. With respect to Job openings, the 5.6 million openings represented a 3.7% job availability rate. There was an observed increase in job openings in business and professional sectors where over 136, 000 openings were recorded. The real estate sector had over 67, 000 job openings. However, the federal government job openings decreased by 37, 000 openings. The hire rate did not indicate any significant changes between the private and government sectors. There was an increase in hires in other services indicating over 54, 000 new hires while the finance and insurance sectors saw an increase in hires where over 41000 people were hired (United States Department of Labor, 2017).
Economic Analysis
The economic impacts of the increased demand for labor, where the available labor is unwilling, incapable or inadequate to meet such demands, are various. However, the outcome is an increase in wages as more labor is demanded. Ordinarily, an economic growth is accompanied by improved wages and earnings (Cahuc, Carcillo, & Zylberberg, 2014).
This trend is expected to change since employers will be compelled to increase wages in order to attract labor. Economic growth is crucial for individuals and the society since it is an indicator of positive returns in terms of wages and profits. In addition, workers are able to put in more overtime increasing their income and productivity. This results in improved production rates that enhance the economic growth further.
As such, people are able to meet their basic needs while saving at the same time. More savings lead to increased investments and, therefore, to the creation of jobs. The reported economic growth has also impacted the currency leading to a rise in value of the dollar. This indicates that there will be more money accessible for spending. This benefits the society since the people’s purchasing power is increased when there is more money in their pockets.
The demand for labor is directly influenced by the wage rate and the employees productivity. The elasticity of demand determines the changes in demand when there are commensurate changes in the wage rate in the labor market.
Table 2: Elasticity of labor
However, there are various factors that influence the dynamic of the elasticity of demand considering that wage is only a fraction of the total production cost in any given industry. The ratio between labor cost and total production has two major implications. In the event that the labor cost represents a small percentage of the total production costs, then the demand for labor will become inelastic since there employees will not have the urgency to look for potential substitutes (Cahuc, Carcillo, & Zylberberg, 2014). Meanwhile, there are views that a different outcome may be realized when the labor cost is a small percentage of the total production costs indicating that “ a rise in wages will result in only a small movement of the supply curve to the left” (Ahuja, 2007). The availability of substitutes has a significant impact on the elasticity of demand for labor. Essentially, in a perfect competition dynamic, an organization’s cost of labor will not increase if there is an increase in demand for labor. However, if there is an overall increase in the wage rate in a given industry, an organization within that industry will be attempt to find alternatives such as finding substitutes to the current labor force.
Economic institutions must undertake progressive examination of key labor market indicators that impact on the economy including aspects such as unemployment rate and participation rate. The participation of labor is often dependent on the available skills that match available job openings (Ahuja 2007). There may be numerous job openings in a given period; however, the participation rate is low since there is a mismatch between the available jobs and skilled people capable of filling such positions. In addition, a significant percent of the working age population may not have the professional or technical skills required to fill the available job openings. These situations result in a high unemployment rate in spite of the available job openings.
Conclusion
The labor market is influenced by various factors that influence the demand and supply. The increase in population translates to an increase in the working population; however, this may not mean that there is an increase in job openings. Governmental and non-governmental economic institutions must work together to ensure that the available working age population can be converted to hirable labor force through education and training. It is prudent to ensure that the education system can produce relevant and competent work force capable of meeting the available demand. Meanwhile, employers must ensure that they offer competitive wage packages to promote an increase in supply of labor. If the wage rate is poor, people often tend to look for alternative sources of income that are capable of sustaining the needs. Therefore, the labor market can only be shaped through initiatives taken to improve the competency and effectiveness of the work force and provision of adequate wages.
References
Ahuja, H. L. (2007). Advanced Economic Theory: Microeconomic Analysis. Delhi, IN: S Chand Limited.
Cahuc, P., Carcillo, S., & Zylberberg, A. (2014). Labor economics. Cambridge, MA: The MIT Press.
United States Department of Labor. (2017). Employment situation summary table A. Household data, seasonally adjusted. Retrieved from https://www.bls.gov/news.release/empsit.a.htm
United states Department of Labor. (2017). Job Openings and Labor turnover summary. Retrieved from https://www.bls.gov/news.release/jolts.nr0.htm
