9. The demand for labour

Elasticity of demand for labour=

%change in the quantity of labour demanded/ %change in wage rate

Factor's influencing a firms demand for labour

1. Demand and expected future demand for the products produced and the revenue that can be earned from output 2. Productivity- the higher the output the more attractive labour is as a resource 3. wage rate- a rise in wage rate above the labour productivity will increase unit labour costs and demand for labour will fall 4. complementary labour costs- if NI rises demand for labour will fall 5.price of other factors of production that can be substitutes or complements to labour will have it's usual effect on demand for the resource of labour

The elasticity of demand for labour

A change in MP or MR will shift the demand curve. A change in wage rate will result in a movement along the demand curve. Factors that influence the elasticity of labour : 1. The price elasticity of demand for the product- if demand for a product is inelastic so will the demand for labour because the change in wage rate won't be quick at changing the demand for the product therefore there will be a similar output meaning that employment will not fall significantly. 2. proportion of wage costs in the total cost in labour intensive industries demand will be elastic as wage rate change will mean total cost will fall considerably so demand for more employees will rise significantly. 3.the ease at which labour can be substituted by other factors , if it is easily replaced by machines a rise in wage rate will lead to quick replacement . demand for labour will fall at a greater percentage than the rise in wage rates. 4.the elasticity of supply for complementary factors-if it is easy to obtain factors that go along side with labour and wage rates fall, then that means that the demand for labour is elastic. 5. time period- in the long run the demand for labour is much more elastic as firms have the time to reorganize their production methods

Aggregate demand for labour

AD for labour is also derived demand, it depends crucially on the level and type of economic activity. When the economy is growing they might employ more workers. Or they might employ less workers if the rate of growth is slower or if growth has led to capital led growth that has introduced improved technology that doesn't require as much labour.

Under Monopolistic completion, oligopoly, monopoly

MR falls with output

In a perfectly competitive market

MR will equal price and will be constant

MRP

The MRP curve is shown as a downward sloping curve or line this is because MRP equals MCL at two points. The higher output is always chosen. It is often difficult to measure MRP. This is because it is difficult to isolate the contribution one worker makes to changes in output as workers sometimes work in teams and employment frequently changes. in addition it is difficult to measure the MP of some workers in the tertiary sector for example how would you measure the productivity of teachers on the grades that their student s achieve in a fair way because one teacher might have a more difficult task of teaching less able students.

Marginal product of labour

The change in output that results from employing one more worker. MPL increases as more workers are hired but at a certain level of employment it may fall as diminishing returns set in.

Marginal revenue product

The change in the firms revenue resulting from employing one more worker. Its found by multiplying marginal product an marginal revenue.

Degrees of elasticity of demand for labour

The more flexible a country's labour market is, the more elastic demand for labour will be. It depends on what factor intensity that the firm is working on . It also depends on the age group and skill of workers. If the wage rate is low companies will hire young unskilled workers. if the wage rate is higher then companies will want long term adults with skilled labour.

flexible labour market

a labour market that adjusts quickly and smoothly to changes in the demand for and supply of labour.

Derived Demand

demand for one item depending on the demand for another item. factors of production aren't wanted for their own sake but for what they can produce and what that output can be sold for. If demand rises or the price for a produce rises the company will seek to employ more workers because they will be able to earn more revenue.

the significance of elasticity of demand for labour

it influences the bargaining strength of TU- they don't wana push too much incase the employers make the workers redundant. so they push for wage rises in jobs with inelastic demand. the government also look at the elasticity when setting the minimum wage in order to avoid unskilled workers resulting in unemployment.