3.5 Labour markets Flashcards
What does the demand for labour represent
The demand for labour show the quantity of labour that employers wish to hire at each possible wage rate
What does the demand for labour depend on
The demand for labour is a derived demand
This means that it depends on the demand for goods/services
marginal revenue product
Define MRP
The extra revenue generated when an additional worker is hired
How to calculate MRP
MRP= MPP x MR
Why is wages and quantity of workers an inverse relationship
SR- law of diminishing returns
LR- substituability of labour + capital (all FoP are variable)- employ cheaper capital relative to labour as it is more cost effective
Define PED of labour
This is the responsiveness of the quantity demanded of labour to the wage rate
How does the PED for a product affect the PED of labour
If the good is elastic, then a rise in wages and hence a rise in prices for consumers will have a large impact on the quantity the business sells. This will mean that the business will reduce the number of people it employs, in order to help it make a profit
How does proportion of wages to the total CoP affect the PED of labour
If wages are a huge proportion of costs, then an increase in wages will increase costs massively and so there will be a large fall in demand for labour hence it will be elastic.
How does substitutes affect the PED of labour
If there are many substitutes, such as machinery and labour in other countries, then the demand will be elastic. This means high skilled jobs tend to be more inelastic than low skilled jobs as the labour cannot be easily replaced.
How does time affect the PED of labour
In the long run, it is more elastic as machinery can be developed and jobs can be moved whilst in the short run firms have to employ workers and redundancy payments can be expensive.
