The Impact of Labor Market and the Labor Union on Supply and Demand - Term Paper Example

Published: 2021-07-14
1364 words
5 pages
12 min to read
Vanderbilt University
Type of paper: 
Term paper
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Demand and Supply form a fundamental unit in the labor market. The Laws achieved due to the forcesin the market economy shows that the interaction between this market forces influences the demand and supply of labor. Labor market focuses on labor demand, which documents the willingness and ability of the firm to hire labor at a given wage rate. On the other hand labor unions concern with the labor supply. Union takes care of the providers of labor who are union members by ensuring better working condition, satisfying wage rates among others.The main goal of this paper is to identify the impact of the labor market and labor unions on the supply of and demand for labor in the market.

Impact of Labor Market on Supply and Demand

In an economic context, labor market is a place where employees and workers interact with each other. Competition among employers to hire the best workers for best satisfying jobs takes place in the labor market. The impact of labor market functions actively with supply and demand of labor. Labor supply represents workers supply of labor whereas labor demand embodies the firms demand of labor. Parallel to this, it is evident that changes in the bargaining power influence the supply and demand of labor in the economy.

Labor supply documents the number of hours workers are willing and capable of offering at a specified wage rate. Many factors in the labor market influence the supply of labor among different people. The effects can be illustrated by a labor supply curve for an industry which shows how different and react workers behave in the labor market at a given wage.

Wage rate in the Industry

Wage rate or a reward for the supply of labor forms a basic factor that determines labor supply in an industry. In light to this, when wages are higher in an industry many people are attracted because of incentives of greater rewards. As a result, the number people willing and able to supply labor is increased. However, the effect becomes severe on competing industries with low wage rates, as they experience a massive deflection leading to a substantial reduction in labor supply. Therefore, other factors remaining constant, the wage rate is directly proportioned to the supply of labor in the labor market.

Barriers to Entry

Introducing minimum entry requirements restricts labor supply, and therefore opportunities to boost wage rates take advantage of forcing high-level pay. The result will lead to a decline in production because of less supply of labor. To reform from such a situation, the artificial limits exhibited by industry's labor supply have to be re-modified to increase labor supply holding wage rates rigid.


Overtime contributes at large to all factors of production;many workers desire to work for over time due to the associated extra payment. In most industries over time is applied as the basic tool to increase production over a short period. The idea boosts the supply of labor alongside the well being of workers. Also, over time means better compensation and this encourages a rapid growth in the economy ascended by an increase in the supply of labor. Therefore, over time stimulates workers to supply more labor hence increased production.


During an economic crisis, many jobs are lost due to infringement of employees. As a result, less disposable income is allotted to much labor in various industries. Small production is realized due to a substantial decline in the supply of labor, and therefore for companies to adjust to equilibrium supply of labor, they must increase their wages to induce hardworkingly. Also, when there is an increase in the population of unemployed, many people will be willing to provide their services whether the wage rate will be exceptionally good of not. Since the supply of labor will be high, production will be induced.


Globalization is also a primary factor that affects both positively and negatively the supply of labor in the labor market. In developing nations, unemployment rate tends to be high. Many multinational industries have a propensity of investing in these developing economies because the supply of labor is highly guaranteed. As a result, many workers looking for jobs and good pay will be accommodated in such multinational companies increasing production in the domestic economy.

To maintain equilibrium in the labor market, it is required that the marginal product of labor is equivalents to the current wage rate. The marginal product of labor is realized when employment of an extra unit of labor yields a change in revenue. In light to this, at the point where wage rates inordinate the benefits realized from an additional unit of labor, firms tend to hire more labor until these two values are restores equilibrium. Therefore, forces in the labor market determine when to employ more labor, and when to stop hiring more labor due to the steady equilibrium state in the market. The labor market has a greater impact on demand and supply of labor as it is the co-factor where wage rates as well as all contributions that induce demand and supply of labor in the labor market.

Impact of Labor Unions on Supply and Demand

Workers and employers approach to demand and supply of labor from different perspectives. However, agreeing has been one difficult challenge for decades. With this in mind, Unions were born to facilitate the dialogue between employers and workers and protect the interest of the union members as well. Therefore, labor unions negotiate with employers on behalf of union members securing an improved working condition and satisfying wage rates in the labor market. Parallel to this, it important to understand how labor unions fit in the ever changing labor market and the impact they have on supply and demand of labor.

Labor Unions limits labor Supply increasing labor demand

The existence of labor union in the labor market restricts the supply of labor by workers and focus largely on increasing the demand for labor. To achieve this, unions negotiate wage rates through collective bargaining which are higher than the equilibrium wage rate. As a result, higher wage rate will equate low supply of labor hence affecting the production in the economy. With is in mind, it is clear that unions not only protect the interest of union members but also increases demand for labor from employers and firms.

Labor unions tend to push for a minimum wage increase. This means that the cost of labor will raise in the case an employer is utilizing unskilled labor. In the long run, the gap between skilled and low skilled workers will decline substantially giving way forward for an increase in the marginal productivity of the union workers.

Labor unions support the restriction of imported goods that is facilitated through different tariffs and quotas. As a result, demand for locally manufactured products or domestic products will increase. It is because the exploitation by foreign firms will be less realized as the demand for domestic production rises. Since high production is directly proportional to the demand for domestic labor, labor unions benefit from this restriction taking care of the union members.

Also, labor unions promote the application of harsher immigration rules. Since unions train their low-skilled members, the supply of labor is limited especially from foreign skilled labor. The association encourages this in pursuit to make skilled labourers more attractive to the employer, and since the minimum wage rate is protected members become the beneficiaries of the union provided services.

From the essay, it is evident that unions aim at consolidating the market power on the supply side of the labor market. Therefore, in summary, the main unions' objectives include satisfying wage rates, improved working environment, and job security for the union members. Also, vacation time, health insurance, and retirement pension plans are highly considered.

In conclusion, the impact of labor market affects the labor market demand because firm entirely focuses on production rather than the interest of suppliers of labor. On the other hand, labor unions focus mainly on the market labor supply which results in protecting the interests of workers. However, union rules may inhibit production, increasing the cost of production hence a rise in the price of goods and services.

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