In ordinary language labour means manual or unskilled labour but in economics it has a wider meaning. It includes not only manual and physical labour and also mental labour as well as skilled and unskilled labour. It has therefore a mental or physical exertion which contributes to production of goods and services during a certain period of time. It has a human effort of any kind undertaken with a view of creating or adding utility. It includes the work of doctors, clerks, engineers, managers, accountants, salesmen, teachers, lawyers, servants, etc. i. e. in short, labour includes any activity undertaken to earn an income. If labour is undertaken for pleasures, working in one’s own garden, singing to yourself or for any other reason it is not considered to be labour. In economics, therefore, all unpaid services are not labour. According to Marshall, ‘Any exertion of mind or body undergone partly or wholly with a view to earning some good other than pleasure derived directly from work.’


Physical and Mental Labour

Physical labour refers to manual work done by a person. It is usually unskilled and less paid. This is undertaken by blue collered workers. Wages are paid for the shorter duration of time e.g. a day/ week, etc e.g. railway coolie.

Mental labour refers to the work of the brain rather than the body. This is usually skilled, educated, trained and paid more. This is undertaken by the white collared. Salaries are usually paid for a month. eg manager.

Productive and Unskilled labour

For a long time there was a disagreement among the economists as to which labour was productive and which was unproductive. According to physiocarats school of thoughts in France, only agricultural was productive because it was only in agricultural and in extractive industrial that real production took place. It created tangible or material goods and increased the wealth of the community. They regarded manufacturing industries as transformative activities.

In the same century that is the 18th century, the merchantalists considered only that labour as productive which resulted in rise of precious metals like gold and silver. Labour that failed to add to the countries stock of money in the form of gold or silver was unproductive.

According to Adam Smith labour which resulted in producing something tangible was productive labour i.e. he treated all the services as unproductive e.g. services of doctors, lawyers, was unproductive.

According to Marshall, labour which resulted in the production of goods and services were productive.

According to modern economists labour is productive when creates or adds utility that commands an exchange value of price. Therefore, any labour that fails to create or add utility or cannot satisfy human wants is unproductive. Any work done out of hobby, love and charity is unproductive (business of stock exchange traders etc. are also included.)

Some labour may not satisfy a want and yet it may be paid for, this is productive labour from the labourers point of view but unproductive from the society’s point of view. e.g. beggar begging money.

According to modern economists, misdirected labour is unproductive. e.g. labour directed towards anti-social activities like smuggling, black marketing etc. Also wasted labour is labour spent in producing a commodity which fails to fulfill the function for which it was produced. Therefore, it is unproductive. e.g. labour spent in painting a house or building a bridge and left incomplete.


Characteristics of labour

Labour is a commodity to be bought and sold but unlike other goods it has certain featuresas it is not only a means of production but also an end of production.

1. Labour is inseparable from the body of the labourer -The labourer has to be present at the place of work. He cannot sit at home and send his labour to work e.g. a doctor has to be present in the dispensary unlike other factors of production.

2. The labourer sells his services and not himself -  A worker is not a slave. He is at liberty to leave his work/job. He retains his personality and induavility. Investment in labour becomes a part of the labourer and when he sells his labour he does not sell his education and training. Therefore, ownership of labour unlike land and capital cannot be transferred.

3. Labour is perishable – It cannot be stored over a period of time. Labour once lost is lost forever. This work can never be made up. Therefore a labourer cannot remain idle and thus sells his commodity “labour” even at low wages rather than go without income.

4. Labourer has weak bargaining power – This aspect of perishability makes the bargaining strength of the worker weaker. Because even if they go on strike it hurts the employer as it is the weapon against the employer but it hurts the labourers too and therefore workers may combine to form trade unions. Collective bargaining through trade unions removes the weakness amongst the workers and improves their wages,conditions of work etc..

5. Supply of labour is not entirely dependent on wages – labour supply cannot be adjusted to demand easily and quickly this is because the general supply of labour is not is not entirely dependent on wages. It is also determined by many other factors like nature of work, conditions of work, scope for promotion, non-monetary benefits size and structure of total population, cost of education etc. Besides  labour supply cannot be adjusted to demand. Because change in wages may affect labour supply differently as other factors also influence labour supply eg if wage rate is very high the supply may decline.

6. Supply of labour changes slowly – Production of commodities or its supply can be quickly adjusted to demand for it e.g. if demand for TVs increases, production can increase in a short time, but if demand for labour increases, it takes anything between 20 to 30 years to increase the supply. In case of professions it takes even longer as more training is necessary.

7. The concept of cost of production is not applicable to labour – as it is to capital goods and consumer goods because cost of production of labour cannot be determined. The cost can be roughly estimated in terms of the expenses incurred by the parents for bringing up and educating their children.

8. Labour is a heterogeneous factor of production – Machines, tools and equipments are uniform in machines and they are standardised but no two units of labour are identical. They differ in efficiency, skill, intelligence, education and other natural and acquired talents.

9. Labour is a living factor – Unlike machines he has intelligence feelings, likes dislikes, makes judgements etc. He works best when he is happy. Apart from wages he needs good working conditions, leisure, rest and recreation between working periods etc. The employer has to encourage him to his best. He is not and cannot be treated like a machine or a commodity.

10. Labour is an active factor of production – By itself however land cannot produce much nor can capital.. To increase production man has to work on land and use capital to increase efficiency. Therefore it is a active factor.

11. Mobility of labour – Labour is less mobile than capital due to attachment to family, difference in climate, language, culture, housing facilities, cost of conversion, new training, etc. if reward is not sufficient and attractive, labour is not mobile, besides it is less mobile because it is inseparable from the labourers body.

Labour is more mobile than land because it is mobile both geographically and occupationally.

12. No wear and charges- In case of labour [unlike capital] it is difficult to calculate depreciation charges.

13. Labour has a derived demand – Demand for labour originates in the demand for some other commodity eg the demand for agricultural/industrial labour is derived in the demand for agricultural/industrial commodities.

14. Labour has a composite demand – Labour has alternative uses. It is jointly demanded with the other factors of production therefore it has a joint or composite demand.

15. Wages and salaries – is the reward or price for the use of labour.


Supply of labour

The forces that determine the supply of labour are different from the forces governing the supply of the other factors of production. The willingness to make labour available depends on the free choice of the labourer particularly choice between work and leisure. The worker has opportunities open to him. In a traditional society with rigid social division of labour, the supply depends upon the traditions and customs. Occupation was decided by birth. Culture and habits also decide supply of labour. Briefly, supply of labour means total number of workers between 50 and 60 years of age excluding housewives.

Factors affecting supply of labour -

1. It depends on the quantity of population – The number of people living in the country is the quantity i.e. size of population e.g. India’s population is 685.1 million according to 1981 census. India’s population grows at the rate of 2.5 percent per year. Therefore, labour supply increases.

2. Age and sex and distribution of population – 15-60 working groups more males work than females.

3. Size of labour force – Actual working people in a country.

4. Wage Rate – In India, the wage rate is high. Therefore, the labour supply is greater. If the wage rate is less, labour supply is less. However in countries where general wage rate is high, people prefer working for less hours i.e. have more of leisure.

5. Hours of work – Reasonable hours of work increase efficiency of labour i.e. a relative increase in labour supply and vice-versa.

6. Attitude of the society towards working women – If positive, it will add to more labour force & vice-versa.

7. Willingness to work – Willingness adds to labour supply and vice-versa.

8. Period of training – If the period of training is very long it brings a fall in the labour supply.

9. Cost of training – More cost of training less will be the labour supply and vice-versa.

10. Economic situation in the country – It depends on the situation in the country. e.g. large scale unemployment will decrease the labour supply as the existing human resources is not fully utilised.

11. Mobility of labour – If mobility is high labour supply will increase and vice-versa.

12. Type of labour – Skilled labour- low labour supply because it is immobile and vice-versa.

13. Time period – Labour supply can be adjusted in the long run.

14. Government regulations – Hour of work, age, etc.


Labour supply in industries -

1. Wage rate

2. Wage rate in different industries

3. Cost of training

4. Skill and efficiency of labour

5. Mobility of labour

6. Age and sex contribution

7. Age of retirement

8. Employment of women and children

9. Social and political conditions in the economy


Mobility of labour

1. Geographical mobility

2. Occupational mobility

a. Horizontal mobility

b. Vertical mobility


Factors affecting mobility of labour

1. Type of labour – Skilled labour less mobility and vice-versa

2. Sex of the worker – If manual work is required male labour is high and when there is delicacy in the work, female labour is required.

3. Mechanisation – If there is a high degree of mechanisation there is high mobility and when there is manual work mobility is less.

4. Caste – When occupation is determined by the cast, mobility of labour is restricted.

5. Trade Union activities – The activities of a trade union determine the mobility e.g. do not accept graduates from other universities.

6. Age – If a person is old and not willing to work, mobility is low. If a person is young and willing to work and increas the standard of living the mobility is high.

7. Ignorence – If a person ignores job availability then the mobility is less.

8. Better income – depends upon the place e.g. In Bombay it may bre high.

Importance of mobility of labour

1. It determines the production of goods and services

2. Fair cost of production

3. Supply is adjusted to demand

4. Fair prices


Demand for labour

It refers to the amount of labour of a given type i.e. employed by the firm at a given wage rate.


Factors affecting demand for labour

1. Demand for the product – Demand for labour is a derived demand i.e. derived from the demand of the product produced by labour. Therefore demand for product increases and demand for labour increases and vice-versa

2 Productivity of labour – The marginal productivity of labour determines the demand for labour. M. P. is the addition made to the total output by employing one more unit of labour. A producer will stop employing labourers at a point where the marginal productivity of labour is equal to wages.

3. Technology – Demand for labour depends on type of technology and techniques of production adopted. e.g. demand for labour will rise with labour intensive technology adopted.

4. Prices of capital inputs – Since labour and capital can be substitutedby each other demand for labour depends on price of capital input i.e. If the price of the capital is high demand for labour will be high and vice-versa.

5. Elasticity of demand for labour – It is the strength of the response of the firms demand for labour to a change in wage rate.

It is determined by -

a. The elasticity of demand for the product fall in wage rate – fall in cost of production – fall in price

If demand for the product is elastic, then demand wil rise more than fall in price. So, producers are induced to produce more. Therefore demand for labour will rise and vice-versa.

When demand for the product is elastic, demand for the labour is elastic and vice-versa.

b. Degree of substitution – If degree of substitution is high, e.g. a slight rise in wage rate and producer will substitute labour by capital and demand for labour will fall.

c. Impact of trade unions – Trade unions prevents substitutions of other factors of labour, and therefore demand for labour becomes inelastic.

Industries demand for labour

So far individual’s firm’s demand for labour has been discussed. Therefore the market demand for the labour is the industries demand for labour i.e. horizontal summation of demand for labour of all firms.

Posted in General Economics