3.5 Labour Markets Flashcards
What does the demand curve for labour show
Shows the quantity of labour that employers would wish to hire at each possible wage rate
What is the marginal revenue product
The MRP is the extra revenue generated by an Individual worker. The higher the MRP, the higher the demand for workers.
What does the law of diminishing marginal productivity mean
Means that the increasing number of workers, whilst all other factors of production are fixed, is likely to increase MRP at first but then cause it to decline.
Why is demand for labour assumed to be downward sloping
In the cling run, all factors of production vary so high wage rates will encourage businesses to use machinery instead of workers and in the short run firms have fixed levels of capital and so diminishing marginal productivity means that adding extra workers gives a lower return so to employ these workers, the wage rates has to fall
Why is demand for labour derived demand
Firms hire workers to produce goods to meet their aim, usually making a profit. Therefore, the demand for labour is derived demand as it is derived from demand for the product the labour produced. Business only want the worker for as long as people are willing and able to buy the product they produce
Factors influencing demand for labour
Wage rates - as wage increase, demand for labour contracts since the MRP of Labour must be higher for time worthwhile employing more people
Demand for product - more demand for product, more demand for labour to produce the product
Prices of other factors of production - if machinery and equipment becomes cheap, people will switch machinery for labour and therefore demand for labour will fall
Wages in other countries - if wages in other countries are lower, people will be hired there as less costs for business.
Technology - improvements in tech reduces demand for labour
Regulation - high regulation is likely to discourage firms from hiring since it can be very costly and time consuming so will reduce demand for labour in these areas
PED in terms of demand for labour
The responsiveness of the quantity demanded of labour to the wage rates
Factors affecting PED of labour
• directly correlated to the PED for the product the labour produces.
• affected by proportion of wages to the total cost of production.
• if there are many substitutes, then the demand will be elastic
• time plays a role, in LR 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 expected
What does the supply of labour curve show
Shows the ability and willingness of people to make themselves available to work at different wage rates
Factors influence supply of labour
Wages - increase in wages leads to increase in hours worked at first but beyond a certain point, it will decrease the hours worked
immobility of labour affecting supply for labour.
They can suffer from occupational immobility where workers find it difficult to move
from one job to another because of a lack of transferable skills
they can suffer from geographical immobility where they find it difficult to
move from one place to another due to the cost of movement, family etc.
what is elasticity of supply in regards to supply for labour
This is the responsiveness of supply to a change in wage rates.
what will elasticity of supply depend on
It will depend on the level of qualifications and training since if there is a high level
of qualifications necessary for the job, people will not easily be able to take up the job
so the supply of labour will be inelastic.
Similarly, it can depend upon the availability of suitable labour in other industries ,
for example if a company can ‘poach’ workers from other industries, then it will be
more elastic.
it depends on time as in the long run supply of labour will be more elastic
as people will have time to train
