3.5.1 demand for labour

Question 1

What are some factors influencing the demand for labour?

Answer 1

• wage rates
• demand for a product
• prices of other FOPs
• wages in other countries
• technology
• regulation

Question 2

How do wage rates influence the demand for labour?

Answer 2

Wages are the price of labour and so influences demand for labour. As wage rates increase, demand for labour contracts is reduced since the marginal revenue of labour must be high for it to be worthwhile employing more people.

Question 3

How does the demand for a product influence demand for labour?

Answer 3

Since labour is a derived demand, if there is no demand for a product, there is no demand for labour. Firms won’t employ more people if the goods produced won’t be sold and a profit made. An increase in demand for a product leads to an increase in demand for labour (derived demand). An increase in output or price of a good increases demand for labour that produces this good.

Question 4

How do prices of other FOPs influence demand for labour?

Answer 4

If machinery and equipment is cheaper, people will switch labour for machinery and demand for labour falls.

Question 5

How do wages in other countries influence demand for labour?

Answer 5

If wages are lower in other countries and wages in the UK are relatively high, people will be employed in other countries as it represents a lower business cost. This means that demand for labour in the UK is low.

Question 6

how does technology influence demand for labour?

Answer 6

Improvements in technology and computers means that jobs are lost as work is done by machines. This decreases demand for labour, however in technological based industries, demand for labour may increase.

Question 7

How does regulation influence demand for labour?

Answer 7

As laws are passed, some jobs can disappear, whilst others are made. High regulation in the labour market will likely discourage firms from hiring since it may be more costly and time-consuming, reducing demand for labour in some areas.

Question 8

Why is labour a derived demand?

Answer 8

Firms hire workers to produce goods to meet an aim, usually making a profit. Demand for labour is derived from the demand for the product being produced by a firm. Businesses only hire workers if people are willing and able to consume their products.

Question 9

What are some factors impacting the PED of labour?

Answer 9

• correlated to the PED for the product they produce. If the good is elastic, a rise in wages and prices for consumers will have a large impact on the quantity sold by the business. Therefore, the business will reduce the number of workers employed, to make more profit.
• impacted by the proportion of wages to the total cost of production: if wages are a huge proportion of costs, an increase in wages increases costs massively and there will be a large fall in demand for labour, hence elastic
• if there are many substitutes, such as machinery, demand will be elastic. this means that high skilled jobs tend to be more inelastic than low skilled jobs as labour can’t be easily replaced
• time: in the long run, it is more elastic as machinery may be developed and jobs can be moved whereas in the short run, firms have to employ workers are redundancy payments may be expensive