Characteristics of the labor market

The characteristics of the labor market are different from the commodity market. Commodity
markets The sellers and consumers of a particular commodity come together to complete the
transaction, but the labor market is a process by which a balance is struck between the supply
and demand of a particular type of labor.
The characteristics of the labor market are as follows.

1. Localization: The demand for labor and the supply of labor seem to be limited to one
place or region. Workers are generally unwilling to move from one place to another or from
one industry to another. Workers are less mobile. The manufacturer needs a specific type of
labor for his industry, he tries to recruit such labor from the local market.
2. Labor-Employer Relationships: Labor market correlations, like commodity markets, are
not temporary. Individual factors are important in the relationship between the worker and
the employer. Individual factors are ignored in the commodity market.
3. Existence of Incomplete Competition: Although conservative economists have assumed
that there is complete competition between the labor market and the commodity market, there
is never any real competition. The labor market is characterized by imperfect competition.
In a developing country like India, there is a lot of incomplete competition in the labor
market.
4. Wage determination: Wage determination is a basic and essential feature of the labor
market. In the absence of labor unions, the employer who buys the labor determines the
wage, but in the commodity market the seller generally determines the price of the
commodity. In the labor market, the price of labor (wages) tends to remain constant for a
certain period of time. The employer does not want the pay to change according to the
demands of each labor supply. It is advisable for the employer to keep the rate of pay fixed
for a certain period of time.
5. More Complications in the Labor Market: The labor market is more complex than the
commodity market. If the potatoes are sold in the Mumbai market or in the Kolkata market,
there is not much difference for the seller. But this is not true for human labor in the labor
market. Every worker, no matter what the occupation or the monetary nature of the
remuneration, feels that you need to be treated with dignity and respect in the workplace.
6. Expansion of the economy: Expansion of the economy is an important feature of the
labor market. The largest or majority of individuals work as laborers in the economy, while a
few work as employers, managers. The highest number is of workers. They are interested in
short-term wage levels, working hours and workplace conditions.
7. Different trends in bargaining power: As a result of industrialization, the average number
of workers in the firm is increasing exponentially. At the same time its bargaining power is
expanding, but the bargaining power of the individual worker is diminishing and it remains
meaningless for all practical purposes. As a result, it loses control over the factors that
determine the wages of individual workers. Due to industrialization, the bargaining power of
buyers and sellers in the labor market is different.
 8. Differences among workers: Homosexual labor is never found in the labor market. Every
worker is different in efficiency, skill, training, honesty. Workers are classified as skilled,
semi-skilled and unskilled workers. Not only this, with the help of fire you can do welding.
There are differences in wages as there are differences in labor. Therefore, there is
incomplete competition in the market. Variation or diversity among the workers is an
important feature of the labor market.
9. Consumer mobilization in labor market: Incomplete competition in labor market. In the
labor market, the number of workers selling labor is innumerable, while the number of
consumers demanding labor is less than the number of manufacturers and the means of
production are concentrated in their hands. Not only that, many manufacturers directly or
indirectly come together and try to bring down the market rates. Thus the labor market is
called the consumer-dominated market. This creates incomplete competition in the labor
market.
10. Inferior labor supply: The supply of labor in the labor market depends mainly on the
number of workers and their efficiency. The number of workers also depends on the
population and its composition. The net increase in population depends on the change in
birth rate and mortality rate. Boom - The demand and supply of labor cannot be adjusted
immediately if the demand for labor changes due to recession.
11. Consumer Market: With the exception of highly skilled workers, there is huge
competition for employment among all workers. Therefore, the labor market is a bargaining
chip between the two parties. That is why the labor market is called the consumer market,
because labor is perishable. Due to lack of demand, workers cannot maintain their supply of
labor. This creates incomplete competition in the labor market.
12. Shortage of Skilled Workers: There is a huge shortage of skilled, trained and supervised
workers mainly in developing economies. The reason for low income of workers is lack of
skills. Workers in underdeveloped countries are less skilled due to poverty, poor living
standards, lack of training, lack of financial and non-financial incentives, etc.
13. Temporary employment: Permanent employment leads to smooth industrial
development of the country by smooth running of production. However, in recent times,
temporary employment has been on the rise in many developing nations like India.
Temporary and retail employment, contract recruitment is becoming a major feature of the
labor market.

Types of Labor Market

Labor is a fundamental and active component of production. Labor has a significant
contribution in the production of goods. The labor market in the economy deals with the
supply and demand of labor. The demand for labor comes from the employer for the
production work, while the supply of labor comes from the workers. The demand for labor in
the market and the supply of labor are influenced by changes in bargaining power. The scope
of the labor market can be local, national or even international. Small and interactive labor
markets are made up of different skills, qualifications and geographical locations. Wage rates
between employers and workers depend on the exchange of information about employment
status, level of competition and job location.
The labor market consists mainly of organized labor market and unorganized labor market.
In the organized labor market the employment conditions are fixed and regular and the
workers are assured. Employment conditions are not fixed in the unorganized labor market
and enterprises are not regularly registered with the government.
(a) Organized labor market: Organized labor is a union of workers as a representative to
improve the economic condition and working conditions of the workers through collective
bargaining power of the workers. A group of organized workers is also known as a union.
Many developing countries suffer from unequal access to labor market organization rights,
education, health care and lack of social protection. This led to instability, labor and
employer conflicts and the formation of six large informal economies. In such a situation the
creation of good jobs and sustainable development gradually decreases.
(B) Unorganized labor market: Employment conditions are not fixed in unorganized labor
market. Industries are also not registered with the government. There is no job security.
More labor is required for higher wages. The unorganized sector accounts for 94% of the
total labor force in India. The Indian Ministry of Labor classifies unorganized workers in
India into four groups. The Indian unorganized market is divided into occupations, nature of
employment, social disadvantaged groups and service classification. The unorganized trade
group includes small and marginal farmers, landless agricultural laborers, fishermen, animal
husbandry, construction workers, weavers, artisans, salt workers, brick kiln workers, oil mill
workers, etc.

THEORY OF HUMAN CAPITAL

Human capital is a habitual, knowledgeable, social and personality trait, which includes
creativity, which builds the capacity to work to create economic values. Human capital is
unique and different from any other capital. Firms need to achieve goals, develop and stay
innovative. E.g. By enabling quality and product improvement levels through education and
training, firms can invest in human capital. Human capital theory is closely related to the
study of human research management, as well as the analysis of business administration
practices and macroeconomics.

The basic idea of human capital was invented by Adam Smith in the 18th century. The
modern theory of human capital was popularized by University of Chicago economist and
Nobel laureate Gary Baker. The 2018 Nobel Prize was jointly awarded to Paul Roman for
his work on the concept and design of human capital as an important element. He established
the modern innovation-inspired approach to economic understanding. Human capital is a
collection of attributes. All knowledge, skills, intelligence, abilities, experience, judgment,
training and wisdom affect the population individually and collectively. These resources
represent the total potential of the people, so that they can be directed towards the specific
goal of the nation or country. Human capital is classified into the following three types. (1)
intellectual capital, (2) social capital and (3) emotional capital.
Human capital theory is a modern extension of Adam Smith's explanation of wage variation
between different occupations. Expenditure on employment education is a significant
component of net profit. According to economists Gary Baker and Jacob Minser, personal
income varies in proportion to human capital investment when other factors are similar. This
includes education and training taken by workers individually or in groups. The next
expectation is that a massive investment in human capital is essential for an increase in the
workforce and skill-based economic growth.
Human capital is created from any activity capable of increasing the productivity of
individual workers. In practice, full-time education is a very easy example. Human capital
investment for workers includes the cost of actual costs and advance earnings. Workers who
make investment decisions compare the attractiveness of alternative future income and
consumption flows; Some of which offer higher future income in exchange for higher
current training costs and delayed consumption costs. The return on social investment in
human capital can be calculated or measured in the same way in principle.
In economics, too, critics of human capital theory point out the difficulty of measuring key
ideas, including future income and the main idea of human capital. Not all investments in
education guarantee advance productivity as decided by the employer or the market. In
particular, it is difficult to measure the productivity and future income of career workers.
Empirical studies have suggested that if some of the prevailing differences in income are due
to acquired skills, the degree of ambiguity is even greater. Incomplete structure and
functioning of the labor market are more important than the productive capacity of the labor
supplier.
Human capital theory has been widely criticized by sociologists in education and training.
The Marxist renaissance of the 1960s criticized the validity of so-called trade-individualism,
especially in the United States, where the theory existed and its extension. Criticism was also
leveled at individuals for blaming the system, blaming the hypocritical capitalists of the
workers and squabbling over the conflict of interest between the two. However, by reducing
this essential critique, human capital theory can be recognized as the origin of rational
exchange theory.

Investment in Human Capital

One of the assets of any industry is its labor force, known as human capital. Business owners
and managers are focused on their upbringing to maintain a perfect, productive and healthy
team of employees. One way to build a positive business culture and effectively manage
workers is to invest individually by providing training in academic advancement and field
specific skills.
There is a growing awareness among business owners that spending money on employee
training is a human investment. To organize seminars, training classes for developing
specific technical skills, conflict management etc. This works to improve the quality of work
of workers, increasing productivity. When workers feel that their company is interested in
developing professionally, they become happier and more productive in their work.
Educational investment in workers also builds loyalty to the business. When junior level
workers are provided with a clear path of professional development and see the potential to
enhance the quality of their own management, they are more likely to invest themselves in
the company and work hard to achieve both personal and professional objectives.
Human capital means that workers increase economic value through their knowledge, skills
and abilities. An average of 70% of a company's changing costs are spent on human capital.
Although huge costs are incurred in creating human capital, many companies do not do
proper planning. You just have to be more discriminating with the help you render toward
other people.
The benefits of human capital investment are as follows.
1. Increased employee satisfaction: Investing in business development for employees
can lead to job satisfaction. According to a 2014 survey by the Society for Human
Resource Management, 42% of workers said that their organization's commitment to
professional development and satisfaction with their work is very important.
2. Improve Retention Rates: About 54% of workers say that career advancement is more
important than salary when looking for a job. In addition, according to 44% of workers, lack
of job growth and advancement is the main source of work stress. This statistic shows the
importance of career growth of workers.
3. Engagement Development: Increasing worker commitment is a priority for every
business. The workers in the company (committed) are more productive and more loyal.
Investing in the development of workers increases the commitment of workers. Giving
workers opportunities for career advancement, investing in their development, keeps workers
busy. Every professional should ask his workers which areas need development.
4. Consumer Commitment Development: Employees are more likely to be satisfied and
involved in the company as they are given growth opportunities. The worker is the face of
the company. When customers interact with busy and satisfied workers, they are more likely
to have a positive experience. Every positive experience enhances customer commitment and
satisfaction. The more satisfied the workers are, the more satisfied the customers will be.
5. Investment rate improvement: Every company invests in human capital. Your employee's
salary, benefits and allowances are an investment in your firm's human capital. To grow a
business, one has to spend money to increase the return on human capital investment.
Workers should be improved by giving them opportunities for progress or learning.
6. Institutional communication improvements: Human capital management allows for the
flow of information throughout the company. The quality of investment in human capital
enhances business interaction through quantitative improvements. Human capital
development works to improve every aspect of worker progress, including communication.
This process helps to find employees who do not have communication skills.
7. Better Recruitment: Human capital development helps retain employees in the company,
but it also helps the company to recruit for the future. Many empirical studies have shown
that the priority factor when applying for a job is the opportunity to learn and progress.
 8. Great Company Culture: One of the benefits of investing in human capital is improving
the organization's culture. High worker satisfaction, commitment and communication lead to
improvement in the whole culture. Employees want to learn, they want to develop their
careers, and they enjoy going to the office every day. A positive culture creates strong and
happy employees.

Education costs and lifetime benefits:

Education is the process of learning or acquiring knowledge, skills, values, beliefs and habits.
Educational approaches include storytelling, discussion, teaching, training, and guided
research. Includes training and guided research. Education can be done under the guidance
of a teacher. However, the student can learn on his own initiative. Education can be done in
formal and informal ways. Formal education ranges from pre-primary to college and
university.
Cost of Education:
Looking at the new developments in the education sector, it has become difficult to focus on
the future of education. Private universities offer quality education, but the cost is huge.
Today, the cost of engineering education in some of the leading institutions in India is
between Rs. 10 lakhs, which will increase to Rs. 40 to 50 lakhs after 15 years. Today the cost
of medical education in a private college is Rs. 25 lakhs, it will be up to Rs. 1 crore after 15
years. The cost of medical education in the management quota has increased tremendously.
India is one of the fastest growing countries in the world. Not only the heritage and culture
of India is of high quality but recently students from all over the world have been attracted
for education.
For foreign students, India is one of the top 15 countries in the world in terms of education
costs. The cost of living in India is very low compared to other countries. The Government
of India funds education in various ways.
The cost of higher education in India is rising. As per the market conditions of 2017, the
turnover for higher education was Rs 7 lakh 8 thousand crore. The market share of higher
education in the country is 60%; The share of primary education is 40%. The cost of
education in India is faster than inflation. According to a survey, middle class families spend
60% of their salary on their children's education. This includes fees, books, uniforms,
transportation costs, tuition fees and other career fees. According to the study, ordinary
parents will have to spend Rs 30 lakh for their child's education from primary to higher
education by 2025. Many parents are worried about the rising cost of higher education. Most
of these parents cannot afford a good education due to high cost. Indian parents should really
get some relief from such higher education expenses.

Lifelong benefits of education:

According to Benjamin Franklin, 'the best return on investment in education. ‘Education is
seen as the golden ticket to a better life. But many young children do not get these tickets at
the right age. Many students did not benefit from the educational institutions around them.
The lifelong benefits of education are as follows.
1. Economic Growth and Sustainability: Many economists agree that there is a direct
correlation between education and economic growth and stability. When an individual
progresses academically, the country's economy grows. The more educated citizens of a
country are, the more likely they are to develop their personal and social economy and
become more successful. Education has a profound effect on income growth and income
distribution. Education benefits the whole country.
2. Happy and healthy life: The most important benefit of education is to improve one's
personal life and lead a proper social life. We live long, wise and happy lives. According to
the Organization for Economic Co-operation and Development (OECD), educated people are
active participants in various social activities. E.g. Voting, volunteerism, political interests
and personal trust, etc. Without improving daily life, educated people live longer than their
uneducated counterparts. Education is essential to improve lifestyle and overall well-being.
3. Social Benefits Unity and Faith: Education benefits the whole community. An educated
society is a united society. Education creates a sense of togetherness and coherence in the
society. The more educated the citizens of the country, the more the economic development
of the country will be.
4. Poverty Alleviation: Many children living in extreme poverty do not get basic education
and lack of education is the root cause of poverty. E.g. If all children acquire basic reading
skills, 17.1 million people will be lifted out of extreme poverty. According to the Education
Outline given by the Education Commission, education can help reduce poverty by 30%.

5. Increases equality: Education is one of the great balances. Education ensures equal
opportunities for all except caste, gender or social class. Lack of education deprives a person
of many good job opportunities. Education increases the opportunities / options for girls and
women. With each incremental class, a woman's income can increase by 10 to 20%.
6. Curb Crime: Education makes one aware of the difference between good and bad. A
sense of duty to society is generated. Those who live in poverty and are the most vulnerable.
Due to lack of opportunity, such people sometimes resort to illegal means. Education creates
opportunities and people can avoid such anti-social activities.
7. Environmental benefits: By 2030, 122 million people will be living in poverty due to
climate change and increasing rates of natural disasters. Green industries need highly skilled
people and these skills are being created through education. Education will help farmers to
do sustainable farming, people with reading, writing, skills are more sensitive and aware of
the environment.
8. Gender Discrimination: Gender discrimination or prejudice against women adversely
affects their education. Many girls and women do not go to school for fear of physical
violence. However, education can have a positive effect on people's attitudes. So the
violence was useless.
9. Curb Child Marriage: Child marriage is a major concern in many developing nations.
Education has reduced these dangerous practices and tendencies. With the increase in
education, the age of marriage of girls increases, child marriage is restricted.

Theory of Labor Demand

The job market is the place where labor market workers or workers provide the services
demanded by the employer. A worker can be any person who wants to pay for your services,
while an employer can be an organization or an organization that is needed for a particular
job or to complete a task. If the worker then compares to the seller, the owner will be the
buyer. A common factor that combines the two factors is the salary or wages that workers
agree to receive from the employer. In short, it is here that workers can find work according
to their skills and qualifications, and both agree on workers' wages, benefits and other forms
of compensation.
In the labor market, it is assumed that the workers have gone to the place where their skills
are in demand, whether they are in their local area or abroad. They are also interchangeable,
which means that the person who can do the job better can be tapped to get other workers'
jobs. In addition, salaries are not fixed, which means they can go up or down depending on
the performance of the workers. Wages or compensation is the most stimulating factor in the
labor market.

Components of the Labor Market:

The labor market consists of four components namely, number of labor components, number
of applicants, number of applicants and selected persons.
1. Labor Force Population: The labor force population or participation in the labor force is
the number of persons available to work in the labor market. It considers all the workers who
are offering their skills and services for their job regardless of their industry.
2. Applicant Population: The second factor is the applicant population which refers to the
people applying for a specific job according to their specificity and skills. Employers first
look at the labor market and then look at individuals who meet certain skills and
qualifications for a particular job. E.g. People looking for IT, graphics design and similar
jobs belong to the same population of applicants that have been targeted by recruiters looking
for these types of professionals.
3. Number of Applicants: The third factor is the number of applicants, which is the actual
number of people who are initially willing to apply for a particular job by sending in their
biodata. This can be considered as the first part of the selection process where applications
are received by the recruitment department of a particular organization and their screens are
set up to determine who makes progress for further testing.
 4. Selected person: The fourth factor is the selected person, which means simply or
personally who has done it through the screening process and has been hired for the job. Of
course, this is based on a number of factors and the person is shown against a set set of
qualifications.

Determinants of Labor Demand:

The following factors underline the four main factors determining the demand for labor as
follows:
1 The amount of co-operative inputs used:
The higher the proportion of co-operative quantity such as capital, the higher the
demand for labor. So the firm can sell more at an unchanged price. Secondly, the
higher the amount of associative input, the higher the MP at any L. The higher the
selling price (P) of the product, the higher the selling price (P) of the product, the
MRP = VMP according to the curve, the higher the curve and the higher the demand
demand curve. Therefore, the higher the P, the higher the demand for L in any
particular W.
2. Decline of Labor Marginal Productivity Act:
Under the law to reduce the marginal product of wages, the higher the number of
workers currently employed. The lower the MP, and therefore MRP = VMPP, the
smaller it will be and consequently it will be smaller. The firm will pay the price of
any labor demanded here. This means that the firm can use more labor only when its
price goes down.
3. The state of the art or technology:
Demand for variable productive service depends on the state of the art or technology as
well as labor. If there is technological advancement, the production work itself will be
changed. In any particular combination of variable inputs there will be higher output. All
variable inputs will be more productive. As a result, the marginal product curves of all
variable inputs move upwards. As a result, MRP = VMPP, the curve and the firm's labor
demand curve will go upwards. Now the demand for wages will be higher for any
particular people.

The Theory of Labor Supply

In the mainstream economic theory, the supply of workers is the total number of hours
(adjusted for the intensity of effort) that the workers wish to work at the actual wage rate.
This is frequently represented graphically by the labor supply curve, in which the rates of
wages are stacked vertically and indicate the number of labors that an individual or group
of individuals is willing to construct horizontally at the rate of that wage.
Neoclassical view:
The labor supply curve 'labor break' brings more income from working long hours earned
from trade, but it is necessary to reduce the leeway earned by the workers. As a result,
changes in the actual wage rate have two effects on the proportion of workers supplied.
E.g. As the real wage rate increases, so does the cost of opportunity. This leads to more
labor supply to the workers (replacement effect). However, as the real wage rate
increases, workers earn more in a few hours. If rest is normal then demand increases or
income increases. This increase in income provides workers with lower wages so that
they can spend higher income on rest (resulting in income). If the effect of the factor is
stronger than the effect of income So the labor supply will go up and down. Beyond a
certain wage rate, the labor supply curve reverses if the effect of income is stronger than
the substitution effect. The individual labor supply curve can be combined to get the total
labor supply of the economy.

Marxist View:
From a Marxist point of view, the supply of labor is a basic requirement in a capitalist
society. Large sections of the population should not have the means to provide for
themselves in order to avoid labor shortages and ensure a supply of labor, which would
allow them to become independent and instead have to work for their survival. In the
pre-industrial economy, wages were usually taken only by very few people who did not
own them.

Work Leisure choice in Indifference Curve:

Not only do people benefit from the products they buy, they also benefit in their free
time. Leisure time is the time spent at work. The utility applies to the purchase of goods
and services as much as the domestic decision-making process, and how many hours it
may take to operate. Wages - Workers selected as wage shifts within the limits of the rest
budget, provide a logical basis for the labor supply curve. There are also insights into
some of the possible reactions in this discussion, assuming they say that when people get
paid more, they have a say in the range of possible reactions and especially if people are
paid higher wages, they will work longer hours.
According to the Bureau of Labor Statistics, in 2014, American workers averaged 38.6
hours a week. This includes part-time workers; for full-time workers only, the average is
42.5 per week. More than half of all workers are employed 35 to 48 hours a week, but a
significant proportion is less than this amount. Breaks the average hourly wage received
by private industry workers, including wages and benefits.
Workers 'wages and salaries are a quarter of the total workers' compensation; The rest is
in the form of health insurance, vacation pay and other benefits. Compensation received
by workers for a variety of reasons, including experience, education, skills, expertise,
trade union membership, and discrimination against certain groups in the labor market,
varies widely. Poverty and economic inequality and labor Issues related to income
 inequality in a market oriented economy such as market problems, unions, discrimination,
migration are studied. Consumer labor supply curve The depressed curve theory of
consumer behavior can be applied according to the pattern of preferred depression
between income and rest. Expenditure on all goods and services is gross income and is
therefore a source of (positive) usefulness for workers. Rest, on the other hand, is the
time left after work. It is also a source of (positive) usefulness for workers. The amount
of income a worker receives depends on how long he has been at work. The more time
spent on work, the higher the income of those workers, the less their leisure time.
Therefore, every worker has to face a trade between trade and rest as indicated by the use
of goods and services and income.

Figure no. 2.1 shows the income and retirement budget line. Shows rest on OX axis and
income or compensation on OY axis. Initially AM is the budget line. In the figure above,
at the beginning of E, trade of income and rest is closed. When the F level at the upper
level is balanced, the yield level increases, then the resting time remains the same as
before (OC).

The Labor - Leisure Budget Constraint

How do workers decide on working hours? Again, let's move on with the concrete example.
The economic logic is exactly the same as the budget limits for consumer choice, but the
labels differ on the limits of the workers' rest budget. Vivian has 70 hours per week that she
could spend on either work or leisure, and her salary is $ 10 an hour. Figure no. In 2.1
(https://opentextbc.ca/Q principlesofeconomics / wp - content / uploads / sites / 149/2016/04 /
CNX_Econ_CO6_005.jpg) the low-budget limit indicates Vivian's possible choices. The
horizontal axis of this figure measures both leisure and labor, showing how Vivian's time is
divided between rest and labor. A few hours of rest on the horizontal axis is measured from
left to right, while an hour of labor is measured from left to right. Vivian will compare the
selection according to this budget limit, which has no income from 70 hours of leisure and
zero hours of rest time at point S and dollar 700 income at point L. She will choose the point
that gives her the most utility. For this example, let's assume that Vivian's utility comes
down to the maximum selection o, 30 hours of rest, 40 hours of work, and a weekly income
of dollar 400.
There are different responses to wage increases, working more hours, working the same
hours or working a few hours, these are patterns shown by different groups of workers in the
US economy. Most full-time workers have jobs where the number of hours is relatively
fixed, partly to their liking and partly because of their employer's method. However, part-
time workers and young workers are more flexible in their hours and are more willing to
extend working hours when wages are higher or wages are cut back.

Utility Maximization:
Theoretical insights are that sometimes higher wages increase working hours, sometimes
hours do not change much and sometimes hours decrease, resulting in labor supply curve
Figure no. It looks like this in 2.2. At the bottom the left side of the labor supply curve
descends upwards, which reflects the situation of a person who pays a large amount of wages
high
Responds to wages. The labor supply curve reflects the situation of a person who responds to
higher wages by supplying about equal wages in the middle, near-to-vertical area. The top of
the labor supply curve is called the backwards curve for wages, which is a situation for high-
paid people who can earn enough money to work for less hours and respond to stable higher
wages. Figure no. 2.2 shows the possibility of individual selection. The OX axis shows the
individual's working hours and rest hours. It shows how the person divides the available
hours between work and leisure. Rest hours are shown from left to right (OX) and working
hours from right to left (XO). Personal income and rest time are estimated in this. This is the
state of complete rest and zero income. On the other hand, this place shows full income and
zero rest. Here the person chooses a point on the LM curve that will give maximum utility.
OX, rest and OA, yield where the person balances Q in the figure. (A) When a person's
salary increases, the person's choice likely goes above the AM line to BM.

Backward - Bending Labor Supply Curve:

In economics, the backward bending supply curve of workers or the labor bending labor /
labor supply curve is a graphical device, which shows a situation in which real (inflation
modified) wages. People will rest when it rises above a certain level. (For unpaid working
hours and higher wages, the supply of workers is reduced and hence the period of short
wages is given for sale. 'Labor break' The key to tradeoffs is to compare the pay from each
component of work and the satisfaction created by the use of unpaid time. Such comparisons
generally entice high paid people to spend more time on salary. The positive effect of the
shift represents the labor text supply curve. However, the backward bending labor supply
curve occurs when even higher wages motivate people to work less and take more rest or use
the time not available. The labor supply curve is shown.

Working hours on the OX axis and the pay rate on the OY axis. SL is the labor supply curve,
S₁ is bent backwards from this point. W, the increase in wages from this particular level is
reducing the supply of labor. During this time workers work fewer hours due to increased
income and enjoy leisure or rest. SS, up to the result result is more than the result result, this
time more hours are worked. However, in the case of S1L the yield effect is more than the
option result, in which case leisure is enjoyed.
Wages rise above the level of subsistence, affecting workers' choice of how many hours to
work per unit (usually days, weeks or months). The first is the replacement or incentive
effect. Trade off between working extra hours for pay and shifting unpaid hours to work. In
this way, more hours of labor time will be offered at higher wages than less. The second and
negative consequence is that hours worked at the old wage rate now make everyone earn
more than before, creating income results, which encourages them to choose more
entertainment, because it is more affordable. Most economists assume that payday (or rest) is
a good time and therefore people want more as their income (or wealth) increases. As the
rising wage rate increases the income, if everything is not stable, the attraction of unattended
time increases, eventually the effect of substitution becomes neutral and may lead to bending.
 Figure shows that if actual wages increased from W1 to W2, the result of the replacement of
individual workers would be greater than the result of income; So the worker will be ready to
increase the work of getting wages from L1 to L2. However, if the actual wage increases
from W2 to W3, the number of hours offered to work for a salary will decrease from L2 to L3
because the power of the effect of income is now greater than the effect of substitution; The
benefits of working overtime without the maximum hours now outweigh the benefits of
working overtime.
The effect of changing the pay rate on workers who are already subject to that rate is under
examination; Only the labor supply response of those individuals was considered. Additional
workers provided by workers in other sectors (or unemployed) are not considered, who are
now more paid and are more attracted to jobs in this sector. Thus, wages behind the labor
supply curve for a given market may be higher than the wage curve behind which. On the
other hand, for the total labor market, workers who are not 'other sectors' for workers .

Assumptions:
"It is important to understand that, along with the curve on the supply of labor, there must be
an assumption that the curve will inevitably bend backwards. The assumptions of the labor
supply theory are listed below. They choose. It is important to understand, because workers
are the focus of labor supply theory. Workers choose how long they work. Workers supply
depends on the idea that workers choose to work. There are no contractual obligations to do.
It is important to understand that contractual obligations will be based on the labor supply
curve and not on time.
Workers are agents of utility enhancement. Compensation should be paid by wages.
Unrestrained leisure time is generally good. Labor market is competitive and New
companies and workers are price takers. Wages received are a form of reservation wages, as
workers will receive a fixed wage which may take them away from rest. This creates
minimum conditions for the workers.

An Application of the Backwards Bending Supply Curve:

The law of supply states that when the price of a good commodity increases, other conditions
are stable, then the supply of that good commodity also increases. The labor market applies,
the more people are paid, the more work they do. No wonder there. But there is a case
where the supply curve is bent backwards. There seems to be a violation of the supply law in
the labor market.
Economists decide to act as a trade-off between model work and leisure. The use of money
and rest is a substitute for a person's time and his income is an inescapable value of rest. As a
person's income increases, it becomes more expensive to work and that person responds by
working harder. This is an option to increase income. But Rest can also be considered a
good thing. As a person's income increases, he will respond with more rest. This is the result
of income and it offsets the effect of substitution at least partially. Income and replacement
are constantly fighting in a person's mind. When there is a law of supply, the effect of
substitution is greater than the effect of subsistence. But when a person's income exceeds a
certain threshold, he feels that his income is high enough to allow him to shop for more
entertainment, and he responds with less work. The effect of the previous threshold yield is
greater than the effect of substitution.

Trade off between inflation and unemployment:

The first concept of the Phillips curve was developed in 1958 by economist A.W Phillips. In
his original article, Phillips tracked changes in wages and unemployment in Great Britain
from 1861 to 1957. A stable, disruptive relationship was found between wages and
unemployment. This correlation between wage change and unemployment is for Great
Britain and other industrialized countries.
In 1960, economists Paul Samuelson and Robert Solo expanded this work to reflect the link
between inflation and unemployment. Since wages are the biggest component of prices,
inflation (instead of changing wages) can be inversely linked to unemployment. Phillips's
curved theory seemed stable and predictable. With the help of 1960 data, the trade-off model
between unemployment and inflation was clarified. The Phillips curve offers potential
economic policy consequences. Fiscal and economic policies can be used to achieve full
employment at high cost levels or to reduce inflation at low employment rates. However, the
relationship broke down when governments tried to use the Philippe curve to control
unemployment and inflation. Data from 1970 onwards did not follow the trend of the classic
Philips curve. The Phillips curve estimates that both the rate of inflation and the rate of
unemployment have been high since the beginning of the year, a phenomenon known as
'stagflation'. Eventually the Phillips curve proved to be unstable and therefore could not be
used for strategic purposes.
It gives policymakers a glimpse into the extent of the trade-off between unemployment and
inflation. The Phillips curve indicates that there is trade, at least in the short term, between
inflation and unemployment. Other economists claim that trade between inflation and
unemployment is low. Why trade between unemployment and inflation is closed?
If the economy experiences growth in AD, it increases productivity. Inflation has also risen
as the economy has moved closer to full employment. However, with real GDP growth,
companies hire more and more workers, which leads to lower unemployment (lower demand
and lower unemployment). Thus with rapid economic growth in the short term we
experience higher inflation and lower unemployment.

Long run Philips Curve

Economist Milton Friedman commented on the 1958 Philips Curve in the American
Economic Review. He pointed out the flaws in the Phillips curve and explained what a long
Phillips curve looks like. According to him, there is a short-term relationship between
inflation and unemployment and there is no such relationship in the long run. According to
this view, the economy is stable at the natural rate of unemployment in the long run, and
therefore the long-term Phillips curve is perpendicular. According to Friedman, the
unemployment rate in the economy cannot be reduced below the natural unemployment rate,
if it does, it will temporarily reduce unemployment. This leads to increase in wages and
inflation. On the other hand, if the unemployment rate in the country is higher than the
natural unemployment rate, it will result in lower wage rates. So if the unemployment rate is
lower than the natural unemployment rate, then the Phillips curve shifts to the right, which in
turn affects the rise in commodity prices. In contrast, if the unemployment rate is actually
higher than the natural unemployment rate, then the Phillips curve shifts downwards to the
left. As a result, commodity prices begin to fall. This means that if the actual unemployment
rate in the country is equal to the natural unemployment rate, then commodity prices are
stable. Therefore, according to Friedman, if commodity prices in the economy are to remain
stable, the country's unemployment rate cannot be reduced in the long run beyond the natural
unemployment rate. In short, the long-term Phillips curve is not a negative, it is
perpendicular to the axis or parallel to the axis. The following figure shows the long Phillips
curve. The rate of inflation is 2 per cent and the rate of unemployment is 1 per cent 2 3
Unemployment ratio Figure no. Figure 9.12 shows the unemployment rate on the axis and
the pay scale on the axis. The Phillips curve shows the correlation between unemployment
rate and wage rate. This curve is as negative as the demand curve. In the figure, 3%
unemployment rate is 2%. And if the unemployment rate goes down from 3% to 2%, then
there is a 4% increase in wages or inflation. If we want to reduce the unemployment rate in
the economy, we have to bear the rate of 4% increase in wages or inflation. Or if the
economy does not want inflation, it will have to bear the unemployment rate of 3%.
According to Phillips, the unemployment rate in the economy is 5% while the inflation rate is
12%. But when the same proportion is less than 5%, the demand for labor exceeds its supply.
Therefore, when the unemployment rate is less than 5%, inflation is inevitable. When the
unemployment rate is more than 5%, the supply of labor in the economy exceeds its demand.
Therefore, the problem of inflation does not arise in 12212 countries till the unemployment
rate reaches 5%. In short, 5% of the unemployment rate in the country is in line with the
demand for labor and the supply of labor. So the price level is stable.
In short, Philips has shown that with the help of its curve, the country should accept
unemployment in order to reduce inflation or it should accept inflation in order to reduce
unemployment. This means that there is a balance between unemployment and wages in the
country. He has shown this through his curves.

Short-term Phillips curve

The trade-off between inflation and unemployment The British economist A. Economist W.
Phillips's views on inflation, unemployment, and wage rates. Do those ideas have a statistical
basis? If so, what is the correlation and how much is studied. He also wanted to do a
statistical test of Keynes's hypothesis and his earlier theory. For that, he almost. S.
Collected statistical data on the unemployment rate and wage change rate in England from
1867 to 1957. The main purpose of this data collection was to find out whether inflation is
due to demand factors or cost factors. When he presented the data collected in the above
period in the form of a diagram, he found a correlation between the unemployment rate and
the change in the wage rate in money. This is called the Phillips curve. In short, the Phillips
curve is a curve that shows the correlation between the unemployment rate and the wage rate
based on the data collected by this economist. The conclusions drawn by Phillips on the
basis of the curve drawn are extremely important.
Conclusion:
1. Unemployment rates and wage rate changes are closely related.
2. The correlation between the two is debt and it is non-linear.
3. When unemployment is low, wage growth is high.
Conversely, this change is less pronounced when unemployment is high. The Phillips curve
is a negative slope that is descending from left to right. This curve is shown in the following
figure.

Important Classification of
Labour Market
Important Classification of Labour Market suggested by Clark Ker is explained below:

1.1 The perfect market

This kind of market is made up of a large number of relatively small and

undifferentiated buyers and sellers.

There is a complete freedom of entry and exit, complete knowledge and complete

mobility of all resources within the market area. Under such circumstances, the single
price prevails and the market is regularised.

2.1 The neo-classical market

The neo-classical market recognises the existence of ‘imperfections.’ The supply of skilled

workers cannot be expanded suddenly because it takes time for a worker to acquire skill. In
spite of the imperfections, it is assumed that wages will tend towards equality for workers in

a given skill classification.

3.0  The natural market

In the natural market, the typical worker has a very limited knowledge of the market as a

whole and unless he is unemployed or just entering the labour force, he is not ‘actively in the

market.’ The workers’ knowledge of the labour market may be limited to his own office jobs

about which he has general information.

Workers do not regularly weigh the advantages of the jobs they hold against other

alternatives. They also do not grudge against the employers not constantly hiring and firing

workers in an effort to find the greatest bargains in the labour market.

4. The institutional market

The institutional market is one in which the policies of unions, employers and the

government have more to do with wage movements than free competitive forces. Indeed, the

objective of policies developed by all three unions, employers and the government is to limit

the free operation of the forces of demand and supply.

Institutional policies, rather than the market, set the upper and lower limits of wages and

these clearly reduce the mobility of labour. Uniform wages are often found for a given grade

of workers in the institutions markets but this is because of the influence of institutions and

not a result of the interaction of demand and supply.

5. The management market

The management market, like the perfect market, does not exist in the real world. The

objective of management market would be to tie the wage setting and labour movement more

closely together than they are in the natural market. This would proceed along with the

imposition of state controls on wage setting and on allocation of labour.

The long run trend in India has been towards the institutional labour^ market where the

influence of demand and supply is considerably curtailed by policies of unions, employers

and the government.