Economics · Lesson 23

The labour market: wages, unions & unemployment

JAMBWAECNECO

What the syllabus asks

JAMB: Factors of production and their theories – theories of wages (marginal productivity, subsistence, wage fund, bargaining); determination of wages in a free market; role of trade unions; unemployment – types, causes, consequences and remedies; labour force and efficiency of labour

WAEC: Labour market: demand for and supply of labour; labour force and working population; wages – meaning, types (nominal and real, time and piece rates) and theories of wage determination; wage differentials; trade unions and collective bargaining; minimum wage; unemployment – meaning, types, causes, effects and solutions

NECO: Labour market: demand for and supply of labour; labour force and working population; wages – meaning, types (nominal and real, time and piece rates) and theories of wage determination; wage differentials; trade unions and collective bargaining; minimum wage; unemployment – meaning, types, causes, effects and solutions

What you will learn

Define labour force, working population and unemployment and calculate the unemployment rate.
Explain the demand for labour as derived demand and calculate MRP.
Explain the supply of labour and wage determination in a free market.
Explain the theories of wages and the causes of wage differentials.
Explain the role of trade unions and the minimum wage, with their effects.
Explain the types, causes, effects and solutions of unemployment in Nigeria.

Key points

Labour force = employed + unemployed actively seeking work.
Demand for labour is derived; MRP = MP × P; hire where MRP = wage.
Wage set by DL and SL; individual supply may bend backwards.
Real wage = nominal wage ÷ price index × 100.
Time rate vs piece rate.
Theories: subsistence, wage fund, marginal productivity, bargaining, residual claimant.
Wage differentials: skills, productivity, risk, unions, location, discrimination.
Unions bargain collectively; wages above MRP may cut jobs.
Nigeria’s minimum wage: ₦70,000 a month (2024 Act); above-equilibrium minimum wage → surplus labour.
Unemployment rate = unemployed ÷ labour force × 100.
Types: frictional, structural, cyclical, seasonal, technological, disguised; each has matched remedies.

Start here: The labour force

Ngozi is a nurse; her brother Emeka is a final-year student; their uncle is a retired teacher; their cousin has graduated and is applying for jobs. Who counts as part of the labour force?

The labour force (economically active population) consists of people of working age who are either employed or unemployed but willing, able and actively looking for work.

Ngozi: employed → in the labour force.
Emeka: full-time student → not in the labour force.
The retired uncle → not in the labour force.
The cousin seeking work → in the labour force (unemployed).

Factors determining the size of the labour force

Size and age structure of the population.
School-leaving and retirement ages.
Participation of women.
Attitudes to work, culture and religion.
Wage levels and opportunities.
Migration (inward and outward, including brain drain).
Health of the population.

Worked example 23.1

A town has 100 working-age people: 54 employed, 6 seeking work, 25 full-time students, 15 homemakers not seeking work. Find the labour force and the participation rate.

Labour force = 54 + 6 = 60.
Participation rate = 60 ÷ 100 × 100 = 60%.

60 people; 60%

⚠️ Common mistake: counting full-time students or retirees as unemployed. They are outside the labour force because they are not seeking work.

Try it yourself. Is a person who has given up looking for work counted as unemployed?

Show solution

Usually no: they are not actively seeking work, so they fall outside the labour force ("discouraged workers").

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Practice questions

1. The demand for labour is a derived demand because it depends on

the demand for the product labour makes
the number of trade unions
the price of land
population only

Show answer

A: the demand for the product labour makes
Workers are hired for their output.

2. MP of a worker is 10 units and the product sells at ₦500. The MRP is

₦510
₦50
₦490
₦5,000

Show answer

D: ₦5,000
MRP = MP × P.

3. A profit-maximising firm hires workers up to where

wage is lowest
MP is zero
MRP = wage
MRP is greatest

Show answer

C: MRP = wage
Hire while each worker adds at least his cost.

4. A worker's money wage rises from ₦50,000 to ₦60,000 while the price index rises from 100 to 125. The real wage is

₦50,000
₦48,000
₦60,000
₦75,000

Show answer

B: ₦48,000
60,000 ÷ 125 × 100.

5. Payment according to the number of units produced is

piece rate
time rate
overtime
bonus

Show answer

A: piece rate
Time rate pays per hour or month.

Key words

Labour force: People of working age who are employed or unemployed but actively seeking work.
Working population: People of working age (commonly 15–64) in a country.
Unemployment: Situation in which people willing and able to work at current wages cannot find jobs.
Underemployment: Working fewer hours than desired or in jobs below one’s skills.
Unemployment rate: Unemployed as a percentage of the labour force.
Derived demand: Demand for a factor arising from demand for the goods it helps produce.
Marginal revenue product (MRP): Extra revenue from employing one more worker: MP × MR (or price).
Nominal (money) wage: Wage measured in money terms.
Real wage: Wage measured in terms of goods and services it can buy.
Time rate: Payment per unit of time worked.
Piece rate: Payment per unit of output produced.
Wage differential: Difference in wages between jobs, workers or places.

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