Government intervention on Labour Market


In the event of a labour market imperfection, Government intervention to remove labour market failure is very important.  Governments will try to improve labour efficiency by removing imperfections. Labour mobility has far reaching economic consequences.  There will be a trend among the labourers to leave the lower wage occupation. This will result in a reduction in supply of labour.  Since the demand remains the same, the reduction in supply of labour will push up the wage rate to get more labourers, which will cause further mobility of labour to that occupation.  If there is labour immobility, the producers cannot adjust the supply of commodities to meet the demand.  When technical progress takes place, there will be mechanisation and thereby there will be a reduction in the demand for unskilled workers. Simultaneously,   the demand for the skilled workers like engineers will be increased.

  The activities of the government to remove the labour market imperfections (weakness) are,
(1) Education and training [it is a Merit good – Educated and trained workforce is beneficial to the society.]
(2) Providing labour market information.[Government job centres give information to Unemployed to search and get job easily.]
(3) Trade Union legislation. [This will reduce the collective bargaining power so that there will be more job opportunities]
(4) Legislation against discrimination. [Prevent the wage difference due to gender, ethnic, colour, etc.]
(5) Equal pay legislation. [Women receive equal pay to men within the firm for same nature of work.]
(6) Minimum wage legislation. [Government fixes a wage above the equilibrium wage rate]
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