Labour Markers (Paper 1 & 3) Flashcards
Labour is a derived demand for…
output.
Define marginal revenue productivity
MRP - the addition to a firm’s revenue from employing an additional unit of a factor of production, usually labour
AKA - the demand for labour
Define marginal physical product
MPP - the addition to output from employing an additional unit of a factor of production, usually labour
Why does the MRP = D for labour?
A firm’s demand for labour depends on the productivity of additional units of labour (MPP) multiplied by the selling price of the product
What does the demand curve for labour show?
Usually referred to as the MRP curve - shows relationship between the wage rate and the number of workers employed.
MPP in the labour market x marginal revenue obtained in the market for the firm’s product
(MPP x MR = MRP)
In a perfectly competitive product market, MR is…
constant - therefore, gradient of MPP and MRP curves will be the same
Determinants of labour demand
Wage rates - higher wages = contractionary movement along D for labour curve
Labour productivity - as output per worker rises - makes them more valuable to employer - increase in demand for labour
Price of substitute factors - e.g. - capital equipment becomes cheaper - leads to reduction in D for labour, as seen in market for supermarket checkout assistants
Other labour costs - includes employers’ national insurance and pension contributions - if these rise, D for labour falls
Define elasticity of demand for labour
Measure of responsiveness of the quantity of labour demanded following a change in the wage rate.
Formula for elasticity of demand for labour
% change in Q of labour demand / % change in wage rate
Determinants of elasticity of demand for labour
Ease of substitution - the easier the substitute, the more elastic
Time - longer time period, easier it becomes to substitute - makes demand more elastic
Elasticity of demand for the good or service - direct relationship - if elasticity of demand for good or service is inelastic, demand for labour inelastic
Proportion of labour cost to total cost of production - larger proportion of labour cost to total production, the greater the elasticity of demand for labour
The supply curve for labour shows…
the relationship between the wage rate and number of workers willing and able to work in a particular occupation.
Determinants of supply of labour
Wage rates - as wages are reward for labour, higher wages = extension along supply curve for labour
Size of working population = if number increases, potential supply of labour rises
Non-monetary factors = include relative satisfaction, job status, promotion prospects, job security, working condition and holiday allowance
Define elasticity of supply of labour
Measure of the responsiveness of the quantity of labour supplied following a change in the wage rate.
Formula for the elasticity of supply of labour
% change in Q of labour supplied / % change in wage rate
Determinants of elasticity of supply of labour
Time - longer the time period, the more elastic the supply of labour - workers more able to switch occupations
Length of training period - jobs requiring long training period/significant experience will tend to have inelastic supply
Vocation - in some occupations - workers often attracted to the profession by a sense of vocation, and opportunity to ‘make a different’ to people’s lives - supply of labour relatively inelastic in these occupations
