C2 Changes in the Labour Market
The labour market is the supply of and demand for labour in a country. The supply means the number of people in a country who are willing and able to work and demand is the amount of workers required by organisations. The labour market provides a pool of workers available to be recruited by a business. The success of a business can be affected by a range of factors including wage trends, regulatory requirements, market demand fluctuations, access to finance, labour mobility and skill mismatches.
Wage Trends
Wage trends are the changes in the general amount of money staff get paid in a country or in a particular industry. Firms need to pay their employees in line with the average wage rate or they risk difficulties in attracting and retaining employees with the skills and motivation to support strong business performance.
If the average wage on the market rises faster than a business can increase its production, profitability can decline. This financial pressure can lead to difficult decisions to reduce staffing costs such as making redundancies or increasing workload. This can lower morale can negatively affect the quality of goods and services.
Employment Laws
Employment laws are the rules imposed by governments that govern the way in which businesses treat their employees. The aim is to ensure fair and responsible treatment of employees to ensure their rights are not infringed. Examples include minimum wages laws, anti-discrimination laws and health and safety laws.
When employment laws change, it can be time consuming and expensive for firms to ensure they are adhering to them. Costs can include higher wages, legal fees, staff training and expenditure on equipment to support and protect employees.
Market Demand Fluctuations
Customer demand for goods and services changes due to a range of factors. This includes changes in tastes and fashions and changes in the economy such as recession altering the amount of money people have available to spend.
When aiming to meet changing demand, firms may need to alter the goods and services they offer. This may lead to the need for a different skillet from their staff. Firms may need to upskill staff through training or recruit new staff.
Labour Mobility
Labour mobility refers to the ability and willingness of workers to move between jobs and geographic locations. Geographic mobility refers to the movement of people between physical locations such as different cities or countries. Occupation mobility refers to the ability to move between different types of employment.
When there is poor labour mobility, it can be more difficult for businesses in certain locations to recruit staff in general and especially with specific skills. This can slow business growth and survival through increased labour costs and incentives are necessary to encourage people to move.
Skill Mismatches
Skill mismatches can occur when the skills needed by employers are not present in the workforce available to them. This can occur due to a range of factors including lack of investment in education and training, difficulties keeping pace with changing technology, lack of systems to communicate job openings and lack of mobility.
When employers can’t find employees with the skills they need, it will cause issues in production and there are not sufficient staff. It can also make it challenging for firms to remain competitive as their costs may increase if they need to incentivise new employees and there may be a reduction in innovation.
