Theory of Wage Determination and Determinants of Demand for Labor (Essay Sample)

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Introduction
This essay aims to analyze the economic analysis and discuss the status of the issue in the US economy. This essay consists of three components theory of wage determination, policies and institutions in the US labor market, and recent trends in the US labor market. The wage theory will discuss the determinants of the demand for labor at both the firm and industry levels. This will also include causes of the need for labor to change and determinants of supply labor. The essay will also analyze the significance of determining wages and employment levels in the US labor market. The paper will also discuss graphs and statistics for minimum wage legislation and trade unions' recent trends in the US labor market.
Theory of Wage Determination
According to classical economists, the price of labor is determined by supply and demand, and it's referred to as the "market theory" of wages. Some supply and demand factors determine the price at which workers might charge for their services. When it comes to workforce supply and demand, the most fundamental is the number of workers that are accessible (request) (Harris & Holmstrom, 1982). In addition, salary levels are influenced by the specific skills employees bring, what businesses require, and employment geography (Dunlop & Segrave, 2016). Put another way: the number of staff, the number of jobs and the skill level needed will lead to wage agreements between workers and employers over time, as these factors interact. Until additional workers are attracted, companies (demand) will keep upping their salary offers until their needs are met. When there is a surplus of employees (supply), wages will decline until the excess labor decides to look for work elsewhere. Only when market forces match that an equilibrium pay rate established.
Determinants of Demand for Labor
A shift in the demand for labor infirm and at an industry level is not the same as a shift in labor's elasticity. As a result of these factors and others, the economy is more or less dependent. The determinants of demands are productivity, number of employees, product demand, and other resources' prices. When the market for a specific product makes the demand for the workers who manufacture that thing, autoworkers will be in more need as long as people buy cars. It is essential to be productive (Cárdenas & Bernal, 2003). A rise in the marginal output per worker will have the same effect on labor demand as a rise in the price of a product. A rising number of businesses means an increase in demand for workers, given no change in hiring by other enterprises. Resources Prices ­changes in the cost of other input will affect the supply of work.
Lower K prices lead to lower demand for L, which reduces Gross Substitutes. There are specific inputs for which price changes affect the market in the same way. These are known as gross substitutes, and they are defined this way: This suggests that the output effect is less significant than the substitution effect. Example: The supply of night guards is declining as business owners' cost of security devices to deter unauthorized entry drops. While this is true if K and L are equal, falling capital prices will increase labour demand (Narayan & Narayan, 2004). A gross complement is a pair of inputs whose market changes inversely in response to changes in one of their prices. To conclude, it can be said that the influence of production outweighs the effect of replacement. Since telephone switching technology has become cheaper over time, there has been an increased need for people with communications skills.
Factors that Affect the change Demand for Labor Change
Generally speaking, households serve as the supply in the labor market, and businesses serve as the demand. When it comes to the array of financial capital, individuals and companies can play either supplier or demander roles: saving or investing their own money or borrowing or receiving other people's money. The annual pay or the hourly income received can calculate the price in labor market demand and supply analysis. It is possible to measure the amount of labor in various ways, including the number of employees or hours worked every day. For example, a shift in consumer demand for a product that labor creates, a change in how manufacturing is carried out, or a change in policy