Labour markets Flashcards
Labour demand
The amount of workers firms are willing to hire at a given rate
Labour demand is what kind of demand
Derived demand
Derived demand for labour
Labour is dependent upon the demand for goods and services.
Marginal productivity theory
Is the idea that the demand for labour is dependent on the MRP (the financial benefit from employing an additional worker). So it suggests that a firm is willing to pay a worker only what they can contribute (the extra output or profit) to the company’s value.
Apply marginal productivity theory to a firm in the SR
Fixed level of capital in SR, so the firm can increase production by hiring workers. Workers can share the capital to help increase production. But as more workers are employed not enough capital can be shared and so only help to increase production by a small amount.
Total physical product
Shows the number of goods a firm is able to produce
Marginal physical product
Shows how much extra product each worker contribute. MPP usually decreases as more workers are employed
If the firm is able to hire a worker for less than their MRP, the firm makes a
Profit
MRP : Marginal revenue product shows
The financial benefit of adding one more worker.
MRP curve is the….
Labour demand curve
MRP is downward sloping so
As the wage rate falls it is worthwhile for each firm to hire more workers
Movement along Labour demand curve
Changes in wage rates
Focussing only of demand for Labour: if wage rate decreases
Demand for labour increases
Focussing on demand for labour when wages increase
Demand for labour decreases
Labour sub market
Looking at labour supply or demand is a particular market with particular skills
Shifts in demand for labour
how demand changes for factors other than wage rates.
Most general reason is demand for the good or service provided can influence demand for labour.
E,g.
- seasonal changes
- tastes /preferences
- substitute goods demand rise
- political stances
- increased demand for foreign production
Outward shifts In demand for labour
Increased consumer demand
Increased labour productivity
Lower capital productivity
Foreign Competition
Government employment subsidies
Inward shifts in the demand curve for labour
Less consumer demand
Lower labour productivity
Higher capital productivity
Less foreign competition
Removal of government subsidies
Wage elasticity of demand
If inelastic then labour does not respond much to a change in wage rate e.g. coal miners
If elastic then labour does respond a lot to a change in the wage rate e.g. IT Specialist
Wage elasticity of demand
Depends upon how much of an impact a change in the wage rate has and how easily the firms can change its staffing levels.
Influences to wage elasticity of demand
PED of the finished product
Proportion of costs spent on labour
Ease and cost of Factor substitution
Time frame
Labour supply
Amount of labour workers are willing to offer at a given wage rate
Basic idea: if wages are higher workers often are willing to
Work More
The traditional labour supply curve is
Upward sloping
Changes in the wage rate causes ….. in the supply of labour
Movements
Why is supply of labour traditionally upward sloping
Workers are willing to trade of more of their leisure time to get a higher return in wage
Unemployed are willing to work
Labour supply shifts
Non-monetary factors:
Working conditions
Fringe benefits
Lower wage in substitute jobs
Higher population
Barriers to entry
