How Wages Are Determined in Australia

Topics: Supply and demand, Collective bargaining, Employment Pages: 3 (864 words) Published: December 8, 2012
How wages are determined in Australia
How wages are determined in Australia
Wages in Australia are currently determined by the interaction of demand and supply of labour in the labour markets. The wage rate is the equilibrium of demand and supply of labour. At the point, the amount of labour supplied is equal to the amount of labour demanded. If the real wage rate is above this point, then there is excess supply of labour, thus causing unemployment. The unemployed people would then be willing to work at a lower wage, hence put downward pressure on the wage rate which eventually move down to the equilibrium wage rate. If the real wage rate is below the equilibrium wage rate, then there is excess demand than supply. In order to continue production, firms will be willing to offer higher wages to attract labour. This will thus lead to higher wages which eventually move to the market equilibrium.

There are many factors affecting the demand and supply of labour in the Australian labour market. As the demand for labour is a derived demand. This means that labour is demanded by the firm when there is demand for the firm's goods or services. Thus, the demand for the firm's products is the most important factor affecting the demand for labour. Generally, when the economy is booming, the firm will experience increasing demand for its products. This will directly lead to higher demand for labour. However, during an economic downturn, more labour will be laid off as the demand for the firm's products decreases. Secondly, the productivity of labour is another important factor. The productivity of labour is defined as the output per unit of labour per unit of time. Thanks to the government policies aiming to increase labour productivity, during recent years the productivity of Australian labour has raised significantly. This means that the firm will have more employees or can pay existing staff more money. Trade unions: In theory unions might exercise their collective...
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