ECS2604
NOTES
,STUDY UNIT 1 – INTRODUCTION
LEARNING OUTCOMES:
i. Understand the necessity of studying the labour market
ii. Be able to describe the unique characteristics of the labour market
iii. Understand why unrealistic assumptions are sometimes made in theory
iv. Be able to describe the important characteristics of the South African labour market
1. INTRODUCTION
1.1 LABOUR MARKET
LO1: Understand the necessity of studying the labour market
NECESSITY OF STUDYING THE LABOUR MARKET
o Help us understand the economic questions or issues that we encounter on a daily
basis such as unemployment, strikes, skills shortage, affirmative action etc
o All stakeholders would benefit from an in-depth knowledge of the labour market in SA
as well as a theoretical analysis of the labour market in general.
o Employers as well as employees have to deal on a daily basis with concepts that we
see and hear about in the media.
1.2 UNIQUE CHARACTERISTICS OF THE LABOUR MARKET
LO2: Be able to describe the unique characteristics of the labour market
THE SEVEN UNIQUE CHARACTERISTICS OF THE LABOUR MARKET
o A product is not being bought but services of a person, a human being.
o Principles of fairness, equity and humanness must be applied.
o The services of the worker are being bought and not the worker therefore a contractual
agreement is important in that relationship.
o The market is characterized by great diversity
o The individual worker changes over time
o There is not one single market or clearing house e.g. JSE
o The price of labour is complex
1.3 UNREALISTIC ASSUMPTIONS ON THEORY (IES)
LO3: Understand why unrealistic assumptions are sometimes made in theory
, o Although at times these assumptions might appear to be rather unrealistic, they
help us to better understand the key issue under discussion.
DISTINCTION BETWEEN A MOVEMENT ALONG a CURVE and a SHIFT of the CURVE
o Movement along a laour demand/supply curve reflects what will happen to the
number of workers demanded/supplied if the price of labour (wages rate) changes,
ceteris paribus.
o Otherwise only changes in wage rate will lead to movement along the
supply/demand curve
o A shift of laour demand/supply curve reflects what will happen to the whole labour
demand/supply curve if one of the other determinants of workers
demanded/supplied at each wage rate changes
Some of Possible reasons for a change in supply:
o New workers entering the market will shift the supply curve to the right
o Impact of HIV/AIDS on labour force will shift the supply curve to the left
o Non-monetary aspects e.g fringe benefits, job security etc will shift the supply curve to
the right
Some of Possible reasons for a change in demand:
o a new substitute for labour becomes available e.g new technology- the introduction
of ATMs resulted in a decrease in the demand for bank tellers (demand curve will
shift to the left)
o if the price of a substitute factor of production changes e.g if the price of machinery
(capital) decreases, more workers will be replaced with machines (demand curve
will shift to the left)
o a sharp increase in export orders (the demand curve will shift to the right)
o if the demand for a certain product produced by the labourers decreases, labour
demand will also decrease (demand curve will shift to the left)
, 1.4 IMPORTANT CHARACTERISTICS of the SOUTH AFRICAN LABOUR MARKET
LO4: Be able to describe the important characteristics of the South African labour market
o One of the main characteristics of the South African labour market is a chronic skills
mismatch.
✓ Where at prevailing wage rates, there is excess demand for skilled labour and
an oversupply of unskilled labour.
✓ The skills mismatch has its origins in the apartheid era. The education system
for the non-white population, particularly blacks, constrained the acquisition of
skills among the majority of the population
✓ Unemployment is particularly concentrated among historically disadvantaged
groups and is higher among the rural, female, uneducated, and young segments
of the population
o Several authors have argued that South Africa’s labour laws impose rigidities in the
labour market that contribute to unemployment (Barker, 1999; Black and Rankin, 1998).
✓ The argument is that the labour laws lead to higher wages than would otherwise
prevail.
✓ They also involve statutes to regulate working conditions that, while protecting
worker rights, create a disincentive for firms to hire and fire workers
THE TWO IMPORTANT FUNCTIONS OF LABOUR MARKET
o Allocate human resources among alternative users
o Distribute incomes
THE OBJECTIVES THAT THE FUNCTIONING OF LABOUR MARKET SERVE
o Growth
o Equity
o Efficiency
o Social justice
PROBLEMS THAT NEED TO BE ADDRESSED IN SOUTH AFRICA
Briefly discuss the problems that need to be addressed in South Africa in order to ensure a
successful labour market outcome.
o POVERTY
• specifically rural poverty
o INCOME INEQUALITY
• Interracial inequality has diminished while intra-racial inequality has increased.
NOTES
,STUDY UNIT 1 – INTRODUCTION
LEARNING OUTCOMES:
i. Understand the necessity of studying the labour market
ii. Be able to describe the unique characteristics of the labour market
iii. Understand why unrealistic assumptions are sometimes made in theory
iv. Be able to describe the important characteristics of the South African labour market
1. INTRODUCTION
1.1 LABOUR MARKET
LO1: Understand the necessity of studying the labour market
NECESSITY OF STUDYING THE LABOUR MARKET
o Help us understand the economic questions or issues that we encounter on a daily
basis such as unemployment, strikes, skills shortage, affirmative action etc
o All stakeholders would benefit from an in-depth knowledge of the labour market in SA
as well as a theoretical analysis of the labour market in general.
o Employers as well as employees have to deal on a daily basis with concepts that we
see and hear about in the media.
1.2 UNIQUE CHARACTERISTICS OF THE LABOUR MARKET
LO2: Be able to describe the unique characteristics of the labour market
THE SEVEN UNIQUE CHARACTERISTICS OF THE LABOUR MARKET
o A product is not being bought but services of a person, a human being.
o Principles of fairness, equity and humanness must be applied.
o The services of the worker are being bought and not the worker therefore a contractual
agreement is important in that relationship.
o The market is characterized by great diversity
o The individual worker changes over time
o There is not one single market or clearing house e.g. JSE
o The price of labour is complex
1.3 UNREALISTIC ASSUMPTIONS ON THEORY (IES)
LO3: Understand why unrealistic assumptions are sometimes made in theory
, o Although at times these assumptions might appear to be rather unrealistic, they
help us to better understand the key issue under discussion.
DISTINCTION BETWEEN A MOVEMENT ALONG a CURVE and a SHIFT of the CURVE
o Movement along a laour demand/supply curve reflects what will happen to the
number of workers demanded/supplied if the price of labour (wages rate) changes,
ceteris paribus.
o Otherwise only changes in wage rate will lead to movement along the
supply/demand curve
o A shift of laour demand/supply curve reflects what will happen to the whole labour
demand/supply curve if one of the other determinants of workers
demanded/supplied at each wage rate changes
Some of Possible reasons for a change in supply:
o New workers entering the market will shift the supply curve to the right
o Impact of HIV/AIDS on labour force will shift the supply curve to the left
o Non-monetary aspects e.g fringe benefits, job security etc will shift the supply curve to
the right
Some of Possible reasons for a change in demand:
o a new substitute for labour becomes available e.g new technology- the introduction
of ATMs resulted in a decrease in the demand for bank tellers (demand curve will
shift to the left)
o if the price of a substitute factor of production changes e.g if the price of machinery
(capital) decreases, more workers will be replaced with machines (demand curve
will shift to the left)
o a sharp increase in export orders (the demand curve will shift to the right)
o if the demand for a certain product produced by the labourers decreases, labour
demand will also decrease (demand curve will shift to the left)
, 1.4 IMPORTANT CHARACTERISTICS of the SOUTH AFRICAN LABOUR MARKET
LO4: Be able to describe the important characteristics of the South African labour market
o One of the main characteristics of the South African labour market is a chronic skills
mismatch.
✓ Where at prevailing wage rates, there is excess demand for skilled labour and
an oversupply of unskilled labour.
✓ The skills mismatch has its origins in the apartheid era. The education system
for the non-white population, particularly blacks, constrained the acquisition of
skills among the majority of the population
✓ Unemployment is particularly concentrated among historically disadvantaged
groups and is higher among the rural, female, uneducated, and young segments
of the population
o Several authors have argued that South Africa’s labour laws impose rigidities in the
labour market that contribute to unemployment (Barker, 1999; Black and Rankin, 1998).
✓ The argument is that the labour laws lead to higher wages than would otherwise
prevail.
✓ They also involve statutes to regulate working conditions that, while protecting
worker rights, create a disincentive for firms to hire and fire workers
THE TWO IMPORTANT FUNCTIONS OF LABOUR MARKET
o Allocate human resources among alternative users
o Distribute incomes
THE OBJECTIVES THAT THE FUNCTIONING OF LABOUR MARKET SERVE
o Growth
o Equity
o Efficiency
o Social justice
PROBLEMS THAT NEED TO BE ADDRESSED IN SOUTH AFRICA
Briefly discuss the problems that need to be addressed in South Africa in order to ensure a
successful labour market outcome.
o POVERTY
• specifically rural poverty
o INCOME INEQUALITY
• Interracial inequality has diminished while intra-racial inequality has increased.
