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Tight labour market

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DavidDenik:
Hey everyone,,
I have my SAC this week and have come across a question that I am struggling to answer. The question is 'Discuss how a tight labor market lead to an increase in wages'- 3 marks... I assume that I would begin my answer by defining what a tight labour market is (However I cant find a definition anywhere), but I am aware that it generally means that the labour market is hard to get into and thus there is low unemployment. It is also a situation where the supply of labour is less then the demand for labour, hence the businesses want more workers but the supply is unavailable. i am however struggling to explain HOW  a tight labour market will increase wages. Is it due to the rate of low unemployment, and thus the workers arent as expandable? Thankyou for your help if you reply  :)

NomotivationF:

--- Quote from: DavidDenik on May 12, 2019, 06:50:28 pm ---Hey everyone,,
I have my SAC this week and have come across a question that I am struggling to answer. The question is 'Discuss how a tight labor market lead to an increase in wages'- 3 marks... I assume that I would begin my answer by defining what a tight labour market is (However I cant find a definition anywhere), but I am aware that it generally means that the labour market is hard to get into and thus there is low unemployment. It is also a situation where the supply of labour is less then the demand for labour, hence the businesses want more workers but the supply is unavailable. i am however struggling to explain HOW  a tight labour market will increase wages. Is it due to the rate of low unemployment, and thus the workers arent as expandable? Thankyou for your help if you reply  :)

--- End quote ---

Hey David, I don't have a set response for this question, but here's how I would answer it;

A tight labour market refers to a time where the economy is close to full employment, and employers find it hard to hire workers. At this time, the demand for labour would exceed the supply for labour. Due to the scarcity of workers in the tight labour market, employers will need to increase wages in order to attract employees, thus leading to an increase in wage inflation.

This may not be enough for 3 marks, but there's not much you can add on to the answer. You may be able to link it to how the increase in wages may increase costs of productions for firms which will consequently decrease aggregate supply but I don't think that's relevant to the question

DavidDenik:
Thankyou for responding  :)
Is their a way to explain how firms that already have an array of employees  increase their wage due to the tight labour market? Or do you think it only applies to those firms who currently dont have workers, and due to their need of workers they increase the wage they are willing to offer to entice them?
Thanks

NomotivationF:

--- Quote from: DavidDenik on May 12, 2019, 07:36:38 pm ---Thankyou for responding  :)
Is their a way to explain how firms that already have an array of employees  increase their wage due to the tight labour market? Or do you think it only applies to those firms who currently dont have workers, and due to their need of workers they increase the wage they are willing to offer to entice them?
Thanks

--- End quote ---

I think it may only apply to firms that need workers, however, you could also argue (if you needed to) that if firms already have workers, they may need to increase their wages to stop workers from joining other businesses that are offering higher wages.

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