Labour Market Flashcards
Define elasticity of supply for labour
Responsiveness of the QS of labour to changes in the wage rate
What are the determinants of elasticity of supply for labour
Qualifications —> high qualification jobs will be inelastic, takes time to get these skills
Mobility of labour —> more mobile labour will be elastic, workers have to be occupationally and geographically mobile to respond to changes in wage rate
Why is the supply curve upward sloping
Higher wage rare represents greater reward for working —> widens gap from claiming benefits
Opportunity cost of not working rises so QS will rise
What are the determinants of demand for labour
Productivity of workforce —> higher productivity translates to lower unit costs —> lower prices so QD increases —> firms must employ more labour to produce extra output
Derived demand —> demand for labour derives from demand for goods and services
Define elasticity of demand for labour
Responsiveness of the QD of labour to changes in the wage rate
What are the determinants of elasticity of demand for labour
Time —> substituting labour for capital is elastic if wages rise —> but firms may not be able to do this due to legal contracts of employment
Proportion of labour cost to total cost —> if labour costs are small proportion of costs then demand will be inelastic —> rise in wages will have little effect on revenue
Why is the demand curve downward sloping
Wage rate becomes higher less labour is demand
Reduces profit and increases cost
