Demand for Labour Flashcards
Give two factors which affect the demand for labour
.How many workers a business is willing and able to hire at a given wage rate during a given time
.If the wage rate is high it becomes costly for them to hire employees
.When wages are lower, labour becomes relatively cheaper than capital
What could a fall in the wage rate create?
It could create a substitution effect and lead to an expansion in demand
Give three causes for a shift in labour demand
.A rise in consumer demand which means that a business needs to take on more workers
.A change in the price of the product that labour is making
.An increase in the productivity of labour which makes labour more cost efficient
.An employment subsidy or tax incentive which cuts costs and allows businesses to hire more workers
.A change in the price of new capital equipment
What is derived demand?
Derived demand is the demand for a factor of production used to produce another good or service
What are the four factors which affect the elasticity of demand for labour?
- Labour costs as a % of total costs
- Ease and cost of factor substitution
- Price elasticity of demand for the final product
- Time period
Is demand for labour more elastic or inelastic when labour expenses are a high % of the total costs?
When labour expenses are a high % of total costs, then labour demand is more wage elastic.
How does the ease and cost of factor substitution affect the elasticity of demand for labour?
Labour demand is more elastic when a firm can substitute easily and cheaply between labour & capital inputs.
What does the PED for the final product determine?
This determines whether a firm can pass on higher labour costs to consumers in higher prices. If demand is inelastic, higher costs can be passed on.
How does time impact the elasticity of demand for labour?
In the long run it is easier for firms to switch factor inputs e.g. bring more capital in perhaps replacing labour.
