Labour in the economy


Economists describe labour as one of the three or four factors of production. In the term labour, they include all humans engaged in work, from labourer to lawyer, watchman to managing director.

The other factors of production are land and capital. You cannot engage in farming unless you have land, and to build a factory you must have a plot of land.

Some economists regard the entrepreneur as existing in a class of his own in that he organises the three factors of production: labour, land and capital.


Capital is a short term for capital goods. These are the goods or equipment used in the production of other goods such as the machines in a factory, the tractor on a farm or the computer ion an office.

Labour as a factor of production is in a special category because it is human. As human beings workers have rights which inanimate things like land and capital goods do not have. We say the reward of land is rent, of capital is interest while of labour is wages.

Land and capital as inanimate things cannot bargain to their rewards but labour does.


There is such a thing as psychology of labour. What motivates a worker to work hard or to choose more leisure and less income? When you raise an employee’s wages, will this motivate him to work longer hours? Does he value more income to feed his family or more leisure to do things he loves in his free time?

The supply of labour in any labour market will depend on the size of the able bodied population that is willing to work. In the early days of contact between European farmers and African peasants, employers used to find it difficult to acquire all the labour they needed, hence had to go to distant places to recruit extra workers because the local population did not have enough.

In those days, people went to work for specific purpose such as to pay tax or buy clothes for the family. They did not look at wages as sources of livelihood. They had land. As soon as they earned enough wages to buy the specific goods they went back home. Europeans used to complain of unsteady or fluctuating labour supply.

These days it is workers that are searching for employers. Demand for labour refers to the quantity of workers an employer is willing to hire at a given wage. Theoretically the demand for labour will depend on its marginal revenue product. This means the addition to revenue that a worker brings to the employer. So long as the employers earn more than it costs him to hire the extra worker he will keep on hiring more. We say that the wages earned will depend on the demand and supply of labour.

In practice many factors influence the wages people earn. Some earn more than others because they are doing jobs that involve risks to their lives. People working underground in the mines risk being buried alive whereas for farm workers there are no such risks. To induce some people to accept mine work employers offer them higher wages.

Some jobs require education and training, hence well-educated and trained people earn higher wages than uneducated or untrained people. Among educated people some people earn far more than others because of their special abilities which cannot be duplicated by education.

For most jobs done by educated people you can train or educate substitutes to take over. But some people have extra talent which enables them to earn fantastic sums. These extra earnings are called rents. A number of people may be trained on how to sing, but may not be able to compose songs of their own while someone has both a beautiful voice and the talent to compose. Such a person will earn more from a singing career than ordinary singers.

Workers earnings also depend on social and legal circumstances. Workers organise themselves into trade unions and bargain with employers. Through collective bargaining and threats of strikes, workers may extract higher wages than they would get in a market governed by the laws of demand and supply.

In many countries governments impose minimum that must be paid to certain categories of workers. While minimum wages may enable those already employed to receive decent wages they dissuade employers from hiring more workers, thus unemployment continues for those willing to earn less.

The Ministry of Labour is promoting legislation that safeguards the rights of workers. It should do so in consultation with government departments that are engaged in enticing foreign direct investment (FDI) as well as small and medium enterprises.

There are many cases where FDI has shied away from a country because labour legislation is weighted too much in favour of the worker and does not provide for the interests of the investor. For example some labour laws prescribe heavy penalties for an employer who terminates the services of a worker who is lazy or dishonest.

Certain conditions such as those regarding leave or minimum wages which are mandatory for larger firms would be too burdensome for the small business person. Those men and women who accept jobs from individuals usually have failed to get employment from government or companies. They are now desperate for “kangachepe”, the little they can get as better than nothing.

The small business, after paying rent for business premises, post office box rentals, city council business licence, is not in a position to pay much better.

Just as the Lord tempers the wind to the shorn lamb the government should treat the struggling small business

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