Labour Markets Flashcards
what does the demand curve for labour show?
demand curve for labour shows how many workers will be hired by a firm at any given wage rate over a given period of time
why is MRP a bell curve?
the revenue generated by the first few workers is positive (high productivity) due to specialisation and perhaps spare capacity (excess land and capital), however for each extra worker hired there are diminishing revenue returns and MRP generated will diminish
what is MRP?
Marginal Revenue Product- a measure of the additional revenue generated by another unit of factor input (in labour market an extra worker hired)
what is the law of labour demand?
workers are hired up until the point where their wage rate exceeds the added revenue an extra worker generates
what is the marginal cost of labour in real terms?
the wage rate
in the wider industry why is there a contraction in quantity of workers demanded at a higher wage rate?
because firms will always hire workers up to the point where their wage rate exceeds revenue generated, at a high wage rate a worker will have to generate a large amount of revenue to justify their employment, this decreases the amount of workers that can fit the job and generate enough revenue.
how would you evaluate MRP theory?
- in some industries its impossible to measure MRP of workers e.g teachers
- imperfect labour markets- what if there are trade unions that ask for a higher wage rate that exceeds the MRP of their workers?
what factors would shift the demand for labour to the left or right?
labour is a derived demand
1. if the price of the final product increases then the revenue generated by workers increases and vice versa.
2. if the demand for the final product increases then demand for workers will increase
3. if the productivity of labour increases so does the MRP and demand shifts to the right
define elasticity of labour demand?
a measure of the change in quantity of labour demanded in response to a change in the wage rate
e.g how many workers a firm can afford to sack if wage increases
what factors affect elasticity of labour demand?
- how easily workers can be substituted for capital, if the wage rate increases and capital can easily substitute for labour then firms may sack workers and replace them with capital (elastic) and vice versa
- Cost of labour as a % of total cost, if labour makes up a small % of total cost firms may be more willing to entertain wage rises
- PED of product- if PED is inelastic they can pass on higher wage costs to consumers and vice versa
what factors shift the labour supply curve?
- barriers to entry (qualifications)
- size of the working population
- working environment- dangerous? how much sick pay, overtime holiday etc.
what is the definition of elasticity of the supply of labour?
a measure of how responsive the supply of labour is to a change in the wage rate
e.g if the wage goes up will there be a large flock of workers entering the industry?
what factors effect the elasticity of the supply of labour?
- Trade Unions,
