3.5 the labour market 3.5.1 demand for labour Flashcards
3.5.1 demand for labour:
what does the demand curve for labour show
what is the demand for labour determined by
what does the law of diminishing marginal productivity say about MRP
what are the 2 reasons explaining why the demand curve for labour is downward sloping
what is the formula for MRP
-the demand curve for labour shows the quantity of labour that employers would wish to employ at each possible wage rate
-the demand for labour is determined by the MRP (marginal revenue product), this is the extra revenue generated by an individual worker. The higher the MRP, the higher the demand for workers
-the law of diminishing marginal productivity states that increasing the number of labour, whilst all factors of production are fixed, will increase MRP at first, but it will then decline
-the demand for labour is downward sloping becuse in the long run all factgors of production vary, so higher wage rates will incentivise firms to use machinery over workers
-the demand for labour is downward sloping because in the short run, firms will have fixed levels of capital and so diminishing marginal productivity means that adding extra workers give a lower return so, employing these workers the wage rate has to fall.
-the formula is the difference in revenue / or marginal output x price
what is meant by derived demand
-the demand for labour is derived demand as it is derived from demand for the product the labour produces.
-e.g as demand for the product increases, so will the demand for labour; vice versa
what are the 6 factors influencing the demand for labour
-wage rates
-demand for the product
-prices of other factors of production
-wages in other countries
-technology
-regulation
Factors influncing the demand for labour:
how do wage rates influence the demand for labour
how does demand for the product affect the demand for labour
how does the prices of other factors of production affect the demand for labour
how does the wages in other countries affect the demand for labour
how does technology affect the demand for labour
how does regulation affect the demand for labour
wage rates:
-a wage is the price of labour, so as the wage rate increases, the demand for labour decreases since there is a lower MRP of labour, this makes it less worthwhile to employ workers so less peopel are employed
demand for the product:
-labour is a derived demand, the less the demand for a product, the less labour that will be employed.firms wont employ people if the goods they make wont be sold and made for a profit. as demand for the product increases so does the demand for labour.linked to MRP as an increase in the output/price of a good will increase demand for the labour that produses that good
prices of other factors of production:
-if machinery and other equipment become cheaper, firms will switch out labour for the machiner and therefore the demand for labour will fall
wages in other countries:
-if wages in other countries are lower than that in the UK, people will be employed in other countries as it represents lower costs of production for firms. This means that demand for labour in the UK will be low
technology:
-improvements in computers and technology means that many jobs have been lost with the work being done by machines, due to having hreater productivity levels. this means that there is less demand for labour in technological based industries. By 2040, about 47% of jobs could be lost to technology
regulation:
-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 the demand for labour in these areas.
Synoptic point:
what else is the demand for labour affected by
-the demand for labour can be affected by the state of the economy, as tis affects demand for the product.
-when the economy is in a poor state, there will be low demand for the product, this leading to a low demand for labour
-the state of the economy also affects expectatations for the future and business confidence, so if confidence is low the business may start laying off workers as they are worried about future costs
PED for labour:
how does the PED of the product affect the PED of labour
how does the proportion of wages to the total costs of production affect the PED of labour
how do substitutes affect the PED of labour
how does time affect the PED of labour
PED of the product:
-the PED of the product is directly correlated to the PED of labour. if a good is elastic, then a rise in wages will lead to a rise in prices for consumers, which will have a large impact on the quantity that the firm sells. This means that the firm will reduce the number of employees to cost cut and remain making a profit
Proportion of wages to the total cost of production:
-if wages are a high proportin of costs, then an increase in wages will increase costs by a large amount, so there will be a large fall in the demand for labour, hence it will be elastic.
substitutes:
-if there are many substitutes, such as machinery and labour in other countries, then the demand for labour will be inelastic, this means high silled jobs tend to be inelastic as they are harder to be replaced
time:
in the long run, demand for labour is more elastic as machinery can be developed and jobs can be moved. whilst in the short run firms have ti employ workers and rendundancy paymenst can be expensive
what is the PED of labour
what are the 4 factors which affect the PED for labour
-this is the responsiveness of the quantity demanded of labour to the wage rate
-the PED of the product
-the proportion of wages to the total cost of procution
-substitutes
-time
