Welcome! In our economics class today, we will be looking at the “Concept of Labour Market, Wages, And Unemployment”. Do have a great moment studying with us!

Lesson Note

Subject: Economics

Topic: The Concept Of Labour Market.

Learning Objectives: By the end of the lesson, the learners should be able to:

  1. Define the terms labour market, wages and unemployment;
  2. Explain the term demand for labour and state the factors affecting it;
  3. Explain the term supply of labour and state factors affecting it;
  4. Explain the term efficiency of labour and state the factors affecting it.

Lesson Discussions


Labour can be defined as all forms of human efforts put into or utilised in production. In other words, it refers to man’s mental and physical exertions generated in the process of production.
Market on the other hand is defined as a point or place or any means of communication whereby the sellers or any means of communicate with one another, to exchange goods and services at prices determined by the market forces.
Labour market is therefore defined as a market in which buyers and sellers of labour are in close contact during which the wages and other conditions of services are determined and agreed upon. Labour is the factor of production which is usually bought and sold in the market.

The Concept of Labour Force

Labour Force may be defined as the total number of persons available to supply the labour for the production of economic goods and services. In other words, it is the total number of people of working age in a country who are able and willing by law to work. It is the active or working population and it comprises all persons who have jobs and those who are seeking for jobs in the labour market. They are normally found between the age bracket of 18 to 65 years. Working population varies from one country to another.
To be a member of the labour force, one must be of a working age ( 18 – 65 years)of the able-bodied i.e. not handicapped either mentally or physically, and must be willing to work.
Persons that are not members of the labour force include
(i) children of school age ( 0 – 17 years)
(ii) the elderly ( above 65 years)
(iii) the handicapped ( either physical or mental).
(iv) persons even though they are able-bodied but are unwilling to work.

Demand For Labour

Demand for labour may be defined as the total number of workers employers are willing and ready to employ or hire at a particular time and at a given wage rate.
The demand for labour is a derived demand, because labour is not required for its demand, because labour is not required for its own sake but for what it can help to produce.

Factors Affecting The Demand For Labour

i. The size of the market: The size of the market for goods and services produced determines the demand for labour. The larger the market i.e. the greater the production of goods and services, the higher the demand for labour to produce the required goods and services.
ii. Number of industries: The higher the number of industries that produces the needed goods and services, the higher the demand for labour.
iii. Wage rate or price of labour: The demand for labour by employers depends on the prices at which labour is offered for sale ( by workers). If labour is willing to take a low wage rate, the demand for labour will be high.
Iv. Availability of other factors of production: If other factors of production such as land and capital are available in large quantity to produce the required goods and services, there will be a corresponding high demand for labour.
v. Efficiency of labour: If the efficiency of labour is high, there would be high propensity for employers to engage more labour and vice versa.
vi. Demand for goods and services: The demand for goods and services in a country can stimulate an increase in the demand for labour.
vii. Nature of industries: The nature of industries – whether it is capital-intensive or labour-intensive will determine the demand for labour. The labour-intensive industries will lead to high demand for labour.

Supply of Labour

Supply of labour may be defined as the total number of people of working offered for employment at a particular time and at a given wage rate. In other words, supply of labour can be referred to as the services of labour available in the labour market.

Factors Affecting the Supply of Labour or Size of Labour Force

i. Size of population of a country: The larger the population, the greater the number of labour to be supplied.
ii. Official school leaving age: If the school leaving age is low, the population of labour force will be high.
iii. Retirement age: The age of exit of public employment will determine the labour force. The older the age the more the supply of labour and vice versa.
iv. Pursuit of higher education: Many people in their pursuit of higher education go beyond the official entry age into the labour force.
v. Age Structure of the population: The structure of a country’s population is a significant determinant of the size of the labour force. The lower the dependant people, the higher the supply of labour and vice versa. In other words, the labour force will increase in a country with a greater number of its people between the age of 18 and 65 years.
vi. Role of women in the society: In some societies, women are usually prevented from engaging in gainful employment because of religious belief, social and cultural factors and this affect the size of labour force.
vii. The number of disabled: When the number of disabled persons is high especially within the working population, the supply of labour will be low.
viii. Migration: The rate of migration can also affect the size of labour force. If the rate at which the working population leaves a country is higher than the rate at which people come in, it will lead to reduction in the supply of labour.

Efficiency of Labour:

Efficiency of labour may be defined as the ability of labour to increase output without increasing the quantity of labour. Increase in efficiency is usually expressed in terms of increase in output of labour within a shorter period of time without any fall in the quantity of goods and services produced. If labour is efficient, the quality of goods and services produced will be high.

Factors Affecting Efficiency of Labour or Ways by which Efficiency of Labour can be Improved

i. Education and training: The level of education and training received by a worker will go a long ways towards increasing the efficiency of labour. A well educated or well trained workers is in position to increase the efficiency of labour.
ii. Level of technology: High technology will increase the efficiency of labour.
iii. Efficient management: When efficient management is in place in any organisation, it will go a long way towards improving efficiency of labour.
iv. Personal skill of the worker: If a worker possesses a natural skill of doing a particular job, his work becomes efficient.
v. Attractive wages: When the salary or wage of a worker is attractive, it will boost or promote the efficiency of the worker.
vi. Weather Condition: The physical or weather conditions in a work place can affect the efficiency of labour. Hot weather lowers efficiency of labour, cool weather or environment increases efficiency of labour.
vii. State of health of worker: A healthy worker is more likely to be more efficient than a worker who is a sickler.
viii. Intelligence of the workers: Some workers are highly intelligent, while others are not. Highly intelligent workers rarely make mistakes.
ix. Conditions of service: An improved condition of service like the availability of transport allowance, bonuses, overtime, etc will help boost efficiency of labour.
x. Application of division of labour: The application of division of labour and specialisation in any organisation can result in the efficiency of labour.

Done studying? See All Previous Lessons In Economics!

Take a quick test for this lesson!

  1. Define the terms labour market, wages and unemployment.
  2. Explain the term demand for labour and state the factors affecting it.
  3. What do you understand by the term supply of labour? State factors affecting it.
  4. What do you understand by the term efficiency of labour? State factors affecting it.

Questions answered correctly? Kudos!!

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