Introduction, Lecture 2

Supply and Demand of Labour

The availability of labor force in an economy depends on the wage rate prevalent in that economy. If the wage rate is high, then the labor force will be willing to work in their respective specialization field, and they will reluctant to join if wage rates are low.

Hence, there is a direct relationship between the availability of the labor force (ALF) and the wage rate (WR):

ALF   ∝     WR

However, there is a distinction between the nominal wage rate and the real wage rate.

If nominal wage rates do not increase in proportions to general price level rise, then there is a decrease in real wage rates.

Real wage rate (RWR)= WR/inflation rate

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