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Word Count: 842
Government and government regulations such as enterprise bargaining combined with the interaction of the market forces of demand and supply contributes to create differences in income in a labour market Therefore this determined the price of labour or the wage levels and the quantity of labour or employment levels Also factors affecting supply and demand influence the income difference The occurrence of differences in income in a labour market is due to the interaction between individuals who are willing to supply their labour to earn an income and employers who are on a demand to obtain the most appropriate labour skills for their production processes In some areas of a labour market there may be a high demand with a shortage for workers with specific and high level skills As a result some employers are more willing to offer higher pay to them than those with lower skills Factors such as the output of the individual firm general economic conditions the productivity of labour and costs of other inputs will affect the labour demand and influence the income differences Whereas the supply of labour is influenced by pay levels working conditions skill and education requirements the participation rate and the mobility of labour In other words differences in peoples skills education and opportunities to earn will have an effect on the disparity of income earned among workers According to the law of diminishing marginal returns each extra worker will contribute less to total production than the previous worker so firm will only employ the extra worker if they pay a lower wage rate So when wage rates declines the demand for workers will increase As the wage rate increases people will be more willing to supply their labour Similarly when the price of labour wage falls an individual firm will employ more labour Therefore the opportunity cost of leisure rises and working is more attractive So at high
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