Efficiency of labour means the productive capacity or productivity of labour. It refers to the quality and quantity of goods essay on rural wage employment programme services which can be produced over a given time under certain conditions . There are two sides to labour economics.
Microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the labour market, the goods market, the money market, and the foreign trade market. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, and retirements from the labour force. Changes in unemployment depend on inflows made up of non-employed people starting to look for jobs and of employed people who lose their jobs and look for new ones, and outflows of people who find new employment and of people who stop looking for employment.
This reflects the fact that it takes time for people to find and settle into new jobs. This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. The estimated rate varies from country to country and from time to time.
While according to neoclassical theory most markets quickly attain a point of equilibrium without excess supply or demand, this may not be true of the labour market: it may have a persistent level of unemployment. Households are suppliers of labour. In the labour market model, their utility function expresses trade-offs in preference between leisure time and income from time used for labour. However, they are constrained by the hours available to them.
This is shown in the graph below, which illustrates the trade-off between allocating time between leisure activities and income-generating activities. The linear constraint indicates that every additional hour of leisure undertaken requires the loss of an hour of labour and thus of the fixed amount of goods that that labour’s income could purchase. The curve indicates the combinations of leisure and work that will give the individual a specific level of utility. If consumption is measured by the value of income obtained, this diagram can be used to show a variety of interesting effects. This is because the absolute value of the slope of the budget constraint is the wage rate.
The wage increase shown in the previous diagram can be decomposed into two separate effects. The pure income effect is shown as the movement from point A to point C in the next diagram. Employment time decreases by the same amount as leisure increases. But that is only part of the picture. This substitution effect is represented by the shift from point C to point B. The net impact of these two effects is shown by the shift from point A to point B. The relative magnitude of the two effects depends on the circumstances.