3.5 - Demand for labour

Question 1

Labour is…

Answer 1

derived demand

Question 2

The labour market is composed of…

Answer 2

• Sellers of labour (households) and buyers of labour (firms)
  > Workers supply their labour and firms demand labour

Question 3

Explain why labour is derived demand

Answer 3

• The demand for labour depends on the demand for goods/services
  > If demand for goods/services increases then the demand for labour will increase - and vice versa

Question 4

Factors That Influence The Demand for Labour

Answer 4

• The wage rate
• Demand for products
• Productivity of labour
• Substitutes for labour
• How profitable the firm is
• The number of firms in the market
• Regulation

Question 5

Explain how wage rate affects demand for labour

Answer 5

• Inverse relationship
  between how much the worker is paid and the number of workers employed.
• When wages get higher, firms might consider switching production to capital, which might be cheaper and more productive than labour.
• Higher wages mean higher costs of production, so higher average costs, so less labour is demanded

Question 6

Explain how the demand for products affects demand for labour

Answer 6

• Since the demand for labour is derived from the demand for a good/service, the higher the demand for the good/service, the higher the demand for labour.

Question 7

Explain how Productivity of labour affects the demand for labour

Answer 7

• The more productive workers are, the higher the demand for them
  > higher productivity means higher efficiency and lower average costs
  > This can be increased with education and training, and by using technology.

Question 8

Explain how Substitutes for labour can affect the demand for labour

Answer 8

• If labour can be replaced for cheaper capital, then the demand for labour will
  fall.
  > as firms can lower average costs and increase efficiency and increase profits by substituting

Question 9

Explain how the profitability level of a firm can affect the demand for labour

Answer 9

• The higher the profits of the firm, the more labour they can afford to employ.

Question 10

Explain how the number of firms in the market can affect the demand for labour

Answer 10

• This determines how many buyers of labour there is
  > more buyers means more demand for labour

Question 11

What can lower demand for labour mean for wages?

Answer 11

• Lower demand for labour can mean wages are lower
  > trade unions may try to encourage higher wages.

Question 12

Do wage rates lead to a movement or shift along the demand curve of labour?

Answer 12

movement

Question 13

Explain how regulation can affect the demand for labour

Answer 13

• High regulation within the labour market is likely to discourage firms
  from hiring since it can be very costly and time-consuming so this will reduce demand
  for labour in these areas