3.5.1: Demand For Labour Flashcards
What does the demand curve for labour show?
- The quantity of labour that employers would wish to hire at each possible wage rate.
What is MRP?
- Marginal Revenue Product
- Refers to the revenue brought in from each extra worker
- MRP= MP x MR
How is demand for labour derived demand?
- Firms hire workers to produce goods, to make profits.
- So, demand for labour is derived demand as it derived from demand for the product the labour produces
What are the factors which influence demand for labour?
- Wage Rates
- Demand for the product
- Prices of FoP
- Wages in other countries
- Technology
- Regulation
- state of the economy
How do wage rates influence the demand for labour?
- As wage rates increase, demand for labour contracts as the MRP of labour must be higher for it to be worthwhile employing more people, so less people are employed.
- (The higher the MRP, the higher the demand for workers)
How does the demand for the product influence demand for labour?
- Labour is derived demand; if there is no demand for the product, there is no demand for labour
- Firms won’t employ if there isn’t high demand for their goods/ enough demand for firms to be making profit.
- An increase in output or price of a good will increase demand for the labour that produces that good
How do the prices of other FoP affect the demand for labour?
- If FoP such as land, capital (machinery and equipment) become cheap, people will switch machinery for labour, causing demand for labour to decrease.
How do wages in other countries affect the demand for labour?
- Wages in other countries may be lower, meaning UK wages are relatively high.
- This causes the demand for labour in other countries to be higher, as people will be employed as the workers (their wages) represent a lower cost for businesses.
How does technology affect the demand for labour?
- Jobs have been replaced by machines causing the demand for labour to be lower, however the demand for labour in tech based industries to be higher
- APP: By 2040, about 47% of jobs could be lost to technology. Jobs that are lost due to tech include, cashiers and workers of tills in retail, supermarkets etc
How does regulation affect demand for labour?
- Regulation causes job losses and gains.
- High regulation within the labour market discourages firms from hiring, due to the cost and time consuming, causing a reduction in the demand for labour.
How does the state of the economy affect the demand for labour?
- It affects the demand for the product
- When the economy is in a poor state, there is low demand for the product.
- Also workers may be let go as the firms may be worried about the future eg how to survive a recession and reduce their costs
What is the price of the elasticity of the demand for labour?
- The responsiveness of the quantity demanded of labour to the wage rate.
What are the factors which affect the PED of labour?
- Proportion of wages
- Substitutes
- Time
- The price elasticity of demand for the product
How does the PED for the product affect PED for labour?
- If the goods are elastic, then a rise in wages, causing a rise in prices for consumers will have a large impact on the quantity the business sells.
- Meaning, the business will reduce the number of people it employs, to make profit
How does the proportion of wages to the total cost of production affect PED for labour?
- If wages are a high proportion of costs, then an increase in wages will increase costs massively, causing a large fall in demand for labour and hence it will be elastic
