Demand for Labour Flashcards
What kind of demand is labour
Derived demand as a rise demand for labour comes from a rise in demand in a certain industry
MRPL
Marginal Revenue Product of Labour
Explain MRPL
Extra revenue gained by the firm from employing one more worker, firms will only higher one more worker they add more to revenue than they do to cost
MCL
Marginal cost of labour, the cost of hiring one more worker or the wage in a perfectly competitive labour market
What does it mean if MRPL is equal to MCL
This is the optimum number of workers to employ to maximise profits
What does it mean if MRPL is above MCL
A firm could employ more workers and increase profits
What doe sit mean if MRPL is below MCL
Firm is costing itself by employing too many workers
How to calculate MRPL
MPPL X MR
what is MPPL
output/physcial product produced by an additional worker
What shape is MRP curve
like ppf
What is the MRP curve the same as
Demand curve
Factors affecting demand of labour
- Wage rate
- Demand for the product or service
- Productivity of labour
- Substitutes for labour
- Profitability of firms
- Number of firms in the market
- Government regulation
How does wage rate affect demand of labour
Inverse relationship between wage rate and quantity of workers, demand for labour will fall when wage rates begin to rise
How does productivity affect demand of labour
Higher levels of productivity the higher the demand for the worker, productivity can be increased with training and education.
unit labour costs
Labour cost per unit of output, so higher the unit labour cost the lower the productivity
Why will wage rate increase not always cause a decrease in demand
If the worker had an equivalent productivity increase then demand wouldn’t change as the unit labour cost would remain thesame
How does product demand affect demand of labour
Demand for labour is derived from the product it is needed to produce so a rise in demand for wheat product causes a risen demand of labour
How does substitutes for labour affect demand of labour
If labour can be replaced by cheaper capital like machinery then demand for labour will fall
How does profitability of the firm affect demand of labour
The more profitable the firm the more labour they can afford to employ so demand increases
How does the number of firms in the market affect demand of labour
The more firms in the industry the higher the demand for labour as more labour is needed, monopsony.
How does government regulation affect demand of labour
More regulations on a firm the more costly it is to operate so they will demand less labour
What does it mean when demand for labour is elastic
Small wage changes cause large changes in the quantity of labour demanded
What does it mean when demand for labour is inelastic
Large wage changes cause small changes to the quantity of labour demanded
What makes demand for labour more elastic
- If labour can be substituted easily for capital
- The more elastic the good that is being produced
- If wages are a larger proportion of a firms costs
What makes demand for labour more inelastic
- If the job has low occupational mobility, high skill with many qualifications
- If the good is inelastic
- If wages take up a smaller proportion of total costs
What is demand for labour in the short and long run
In the short run it is more inelastic as changes are more difficult to make, but in the long run firms can plan ahead to replace labour making it more elastic
Example of a monopsonist labour market
London Underground
