What is market?

In economics, typically, the term market means the aggregate of possible buyers and sellers
of a certain good or service and the transactions between them.
Who is Labor?
Labor includes both physical and mental work undertaken for some monetary reward. In this
way, workers working in factories, services of doctors, advocates, ministers, officers and
teachers are all included in labor.
Any physical or mental work which is not undertaken for getting income, but simply to attain
pleasure or happiness, is not labor.
For example, the work of a gardener in the garden is called labour, because he gets income
for it. But if the same work is done by him in his home garden, it will not be called labour, as
he is not paid for that work.
Characteristics of Labour:
Labour has the following peculiarities which are explained as under:
Labour is an Active Factor of Production: Land and capital are considered as the passive
factors of production, because they alone cannot start the production process. Production
from land and capital starts only when a man makes efforts. Production begins with the
active participation of man. Therefore, labour is an active factor of production.
Labour is Perishable: Labour is more perishable than other factors of production. It means
labour cannot be stored. The labour of an unemployed worker is lost forever for that day
when he does not work. Labour can neither be postponed nor accumulated for the next day.
It will perish. Once time is lost, it is lost forever.
Labour cannot be separated from the Labourer: Land and capital can be separated
from their owner, but labour cannot he separated from a labourer. Labour and labourer are
indispensable for each other. For example, it is not possible to bring the ability of a teacher
to teach in the school, leaving the teacher at home. The labour of a teacher can work only if
he himself is present in the class. Therefore, labour and labourer cannot be separated from
each other.
Less Mobility of Labour: As compared to capital and other goods, labour is less mobile.
Capital can be easily transported from one place to other, but labour cannot be transported
easily from its present place to other places. A labourer is not ready to go too far off places
leaving his native place. Therefore, labour has less mobility.
Weak Bargaining Power of Labour: The ability of the buyer to purchase goods at the
lowest price and the ability of the seller to sell his goods at the highest possible price is
called the bargaining power. A labourer sells his labour for wages and an employer purchases
labour by paying wages. Labourers have a very weak bargaining power, because their labour
cannot be stored and they are poor, ignorant and less organised.
Moreover, labour as a class does not have reserves to fall back upon when either there is no
work or the wage rate is so low that it is not worth working. Poor labourers have to work for
their subsistence. Therefore, the labourers have a weak bargaining power as compared to
the employers.

Inelastic Supply of labour: The supply of labour is inelastic in a country at a particular

time. It means their supply can neither be increased nor decreased if the need demands so.
For example, if a country has a scarcity of a particular type of workers, their supply cannot
be increased within a day, month or year. Labourers cannot be made to order like other
goods.
The supply of labour can be increased to a limited extent by importing labour from other
countries in the short period. The supply of labour depends upon the size of population.
Population cannot be increased or decreased quickly. Therefore, the supply of labour is
inelastic to a great extent. It cannot be increased or decreased immediately.
A Labourer sells his Labour and not Himself: A labourer sells his labour for wages and
not himself. The worker sells work but he himself remains his own property. For example,
when we purchase an animal, we become owners of the services as well as the body of that
animal. But we cannot become the owner of a labourer in this sense.
Increase in Wages may reduce the Supply of Labour: The supply of goods increases,
when their prices increase, but the supply of labourers decreases, when their wages are
increased. For example, when wages are low, all men, women and children in a labourers
family have to work to earn their livelihood. But when wage rates are increased, the labourer
may work alone and his wife and children may stop working. In this way, the increase in
wage rates decreases the supply of labourers. Labourers also work for less hours when they
are paid more and hence again their supply decreases.
Labour is both the Beginning and the End of Production: The presence of land and
capital alone cannot make production. Production can be started only with the help of labour.
It means labour is the beginning of production. Goods are produced to satisfy human wants.
When we consume them, production comes to an end. Therefore, labour is both the
beginning and the end of production.
Differences in the Efficiency of Labour: Labourer differs in efficiency. Some labourers
are more efficient due to their ability, training and skill, whereas others are less efficient on
account of their illiteracy, ignorance, etc.
Indirect Demand for Labour: The consumer goods like bread, vegetables, fruit, milk, etc.
have direct demand as they satisfy our wants directly. But the demand for labourers is not
direct, it is indirect. They are demanded so as to produce other goods, which satisfy our
wants. So the demand for labourers depends upon the demand for goods which they help to
produce. Therefore, the demand for labourers arises because of their productive capacity to
produce other goods.
Difficult to find out the Cost of Production of Labour: We can easily calculate the cost
of production of a machine. But it is not easy to calculate the cost of production of a labourer
i.e., of an advocate, teacher, doctor, etc. If a person becomes an engineer at the age of
twenty, it is difficult to find out the total cost on his education, food, clothes, etc. Therefore, it
is difficult to calculate the cost of production of a labourer.
Labour creates Capital: Capital, which is considered as a separate factor of production is,
in fact, the result of the reward for labour. Labour earns wealth by way of production. We
know that capital is that portion of wealth which is used to earn income. Therefore, capital is
formulated and accumulated by labour. It is evident that labour is more important in the
process of production than capital because capital is the result of the working of labour.

Characteristics of Labour Markets

A commodity market refers to a physical place where buyers and sellers of a particular
commodity gather for engaging in transactions while a labour market is viewed as a
process by which supplies of a particular type of labour and demands for that type of

labour are balanced, is an abstraction.

Secondly, unlike a commodity market, the relationship between a seller and a buyer in
a labour market is not temporary and as such personal factors, which can be ignored

in a commodity market, become important in a labour market.

Thirdly, unlike a commodity market, in a labour market there is a lack of perfect
mobility which gives rise to a diversity of wage rates for the same type of work and we
do not find a normal wage rate to which the market rate naturally tends. In other

words, labour market is essentially an imperfect market.

Fourthly, wage fixing is an essential characteristic of the labour market, where (in the
absence of unions) the buyer of labour normally sets the price but in the commodity

market, it is normally the seller who sets the price.

In labour market the price that is set tends to be fixed for some length of time.
Employers do not want wage rates to fluctuate with every change in demand and

supply conditions.
The sixth essential characteristic of the labour market of an expanding economy is
that the vast majority of individuals are employees while relatively small minorities
function either as employing persons or as employed managers of employing units. As
the vast majorities are labours, they are interested in short-run wage-levels, working

hours and working conditions.

The labour market is characterised by stability and lack of fluidity and diversity of
rates for similar jobs. A rise in the price of labour offered by a particular employer does
not cause employees of other firms receiving fewer wages to leave their jobs and go

to high wage employer.

Age is also an important factor in the mobility of labour. In general, young workers
tend to be more mobile than their older counterparts in the labour force.
Different types of market

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 regularized.
The neo-classical market - The neo-classical market recognizes 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.

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.
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.
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.

Compensation
It refers basically to the total gross (pre-tax) wages paid by employers to employees for work
done in an accounting period, such as a quarter or a year.
CE is defined as "the total remuneration, in cash or in kind, payable by an enterprise to an
employee in return for work done by the latter during the accounting period". It represents
effectively a total labour cost to an employer, paid from the gross revenues or the capital of
an enterprise.
Compensation of employees is accounted for on an accrual basis; i.e., it is measured by the
value of the remuneration in cash or in kind which an employee becomes entitled to receive
from an employer in respect of work done, during the relevant accounting period - whether
paid in advance, simultaneously, or in arrears of the work itself. This contrasts with other
inputs to production, which are to be valued at the point when they are actually used.
In different countries, what is actually included and excluded in CE may differ somewhat.
The reason is that the way in which workers are compensated for their labour may be
somewhat different in different types of economies. For example, in some countries workers
get substantial payments "in kind", in others they don't. Systems of social insurance also
differ between countries, and some countries have little social insurance. One has to keep
this in mind when comparing CE magnitudes for different countries.
Compensation also includes payments such as bonuses, profit sharing, overtime pay,
recognition rewards and checks, and sales commission. Compensation can also include non-

monetary perks such as a company-paid car, stock options in certain instances, companypaid housing, and other non-monetary, but taxable, income items.
Remuneration in kind paid by the employer to the employee valued at purchaser's prices,
including meals and drinks, personal accommodation, uniforms worn outside of the
workplace, vehicles or other durables provided for the personal use of employees, free
personal travel, free personal fuel, recreational facilities, transport and parking subsidies,
and creches for the children of employees.