Describe the nature of supply and demand for labour. Outline as
carefully as you can how rates are actually determined. What is the concept
of "the internal labour market"?

Hi sodiswat!
In the following link, you can find a short definition of "labour
supply" and "labour demand".

Labor demand: "Originates with the company; in the traditional
economic theory of the private firm, it is considered on a par with
the demand for the factors of production and is therefore defined by
the principle of the maximization of profits"

Labor supply: "Quantity of labour available at a given time for
economic activity [...] It is determined principally by the
demographic features and working age of the population and also by
social and cultural factors, as regards women for instance"

Labour Market
http://www.eurofound.eu.int/emire/ITALY/LABOURMARKET-IT.html

So labour demand represents the number of workers firms are willing to
hire. Clearly, it mainly depends on the real wage rate, which is the
wage divided by the price level. This is so because the employers make
the following analysis before hiring a a worker. They ask themselves
if the value of what this worker will produce is higher than the cost
of hiring the wroker. If it is higher, then hire the worker. If it's
not, don't. Clearly, the "cost" of hiring a worker is the wage rate;
and the "value" of the production of the worker depends on the
productivity of the worker and the price at which the production can
be sold. Therefore, as wage becomes higher, labour demand decreases,
because it becomes more costly for the firm to hire a worker. You can
find a labour demand curve at the following link. As you can see, in a
graph with the work hours in the x-axis and wage in the y-axis, the
labour demand is a downward-sloping curve.

Labour demand
http://www.fgn.unisg.ch/eurmacro/tutor/c13.html

Labour supply, on the other hand, shows how many hours are people
willing to work. Clearly, labour supply depends mainly on the wage
rate. In particular, the higher the wage rate, the more hours are
people willing to work. Or, we might also say that, in order to work
more, people will require a higher wage rate. In any case, if you draw
the labour supply in the same graph as before, you'll see that it is
an upward-sloping curve. Labour supply can also vary due to
demographic reasons, or welfare programs. Mothers, for example, would
only be willing to work for high wage rates, since they would have to
give up too much to go to work. Men, or non-mothers, would, on the
other hand, be less sensitive to this effect. Also, if there is a
strong social program that gives a lot of money to the unemployed,
these people will also require higher wage rates in order to work,
because they might make more money will being unemployed than working.
You can find a more detailed discussion on labour supply at the
following link:

Labor Supply
http://www.sparknotes.com/economics/micro/labormarkets/laborsupply/section1.html

So, how are the wage rates determined? The short answer is: by finding
the equilibrium between labour supply and demand, much like prices for
good are determined. Since we've seen that labour demand is
downward-sloping and labour supply is upward sloping, they will
intersect at some point. That point represents a wage rate such that
supply equals demand. A higher wage rate would represent an excess
supply (which would imply unemployment: people who want to work but
firms are not willing to hire); while a lower wage rate would
represent an excess demand, which would push up the wage rate as firms
compete for hiring workers. So the wage rate is determined by the
intersection of both curves; that is, the equilibrium wage rate is
such that the labour demand is equal to the labour supply. In the
following page (scroll all the way down) you'll find a short
discussion about equilibrium in the labour market, as well as some
graphics.

Labor Demand
http://www.sparknotes.com/economics/micro/labormarkets/labordemand/section1.html

As for what is the concept of "internal labour market", here is a
definition, taken from the first link:

"The concept of the "internal" labour market, on the other hand,
refers to a situation in which the activities and processes of labour
demand and supply take place within the individual enterprise: most
posts are filled by internal promotion or transfer of existing
employees, in accordance with formal or informal rules (seniority,
trade union traditions) and making use of training schemes"

Thus in the "internal" labour market, wage rates needn't be the same
for the external labour market, since in the latter (the one we've
discussed above) labour supply consists on the whole economy's work
force, while in the internal labour market, labour supply is
(somewhat) restricted to those already working for the firm.


Google search strategy:
"labor demand"
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"labor supply"
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"internal labor market"
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I hope this helps! If you have any doubt regarding my answer, please
don't hesitate to request a clarification before rating it. Otherwise,
I await your rating your final comments.


Best wishes!
elmarto