3.5 - Labour Market Flashcards
What is the labour market?
The labour market, refers to the supply and demand for labour in the economy, where employees provide the demand and employers provide the supply.
Define the demand for labour.
The demand for labour consists of how many workers an employer will hire at a given wage rate in a certain time period.
What is derived demand?
Demand for labour is known as derived demand, where it is directly powered by consumer demand for a good or service.
Explain the Marginal Revenue Product Theory (MRPL).
Demand for labour depends on the marginal revenue product of a worker. The MRPL theory talks about firms suffering from lower marginal productivity due to hiring extra workers. Each extra worker will have a lower marginal product, decreasing the value of their output and hence their wages may fall as well.
Describe the labour demand curve.
The labour demand curve is a downwards sloping demand curve, with the upper region initially ignored. The curve demonstrates the marginal revenue product theory, where hiring extra workers reduces wage rates due to the fall in marginal productivity and output of workers.
Give a determinant of demand for labour.
Consumer demand: A rise in consumer demand for goods and services will prompt businesses to increase demand for labour to increase productivity of goods and services.
Describe another determinant of demand for labour.
A rise in productivity of labour can help reduce costs significantly, making labour more cost-efficient than capital.
Give a third determinant of demand for labour.
An employment subsidy from government to the firm, helping to cut costs and ease the employment of workers.
Define the elasticity of demand for labour.
The elasticity of demand for labour measures the change in quantity demanded for labour in response to a change in wage rates.
Give the formula for elasticity of demand for labour.
EDl = (% change in quantity demanded of labour) / (% change in wage rates)
Give a factor of elasticity of demand for labour.
Elasticity of demand of the product: If there is positive, high elasticity of demand for a good or service then this can cause a positive elasticity of demand for labour from a firm.
Describe another factor of elasticity of demand for labour.
Labour demand can be more elastic if labour can be substituted with capital technology; in the security industry, rather than using security guards, most people often use wireless alarms in their homes for safety.
What is the supply for labour?
The supply for labour is the number of hours worked by labour in a workplace, supplying goods at a certain wage rate.
What effect will occur at low levels of income for a worker?
There will be a substitution effect here because workers may not be able to afford much leisure activities, so they may substitute more leisure with more work.
What effect occurs at high levels of income?
Income effect - Upon reaching a high target income, workers can afford more labour activities hence they will sometimes prioritise this above their work.
