LABOUR MKT - elasticity of labour demand Flashcards
what does elasticity of labour demand measure
responsiveness of laobur demanded given a change in wage rate
what does a wage elastic demand curve mean
the proportionate vhange in labour demand is greater than the change in wage rate
draw a elastic labour demand curve
title
labelled axis
curve labelled
should be shallow
what does inelastic labour demand curve men
proportionate change in labour demand is less than change in wage rate
draw an inelastic labour demand curve
title
axis labelled
curve labelled
shoud be steep
what is acronmy for 4 jey determinants of labour demnd elastitcty
S ubstitutability
E lastitcity
C ost
T ime
what does S stand for
substitutability of capital for labour
the more substitutable capital is for labour ..
the more elastic labour demand will be
what happens if wages rise and there’s a high substitutability of labour for capital
firms wont hire as many workers
sack more workers
as bring in capital to substitute for them
if capitatl is highly subsitutable for laobur describe proprtionaloity whenwages rise
proportional decrease in labour demanded is much higher than the increase in wages
explain what happens when wages rise and capital isnt very susbsitiuable for labour
how easy
elasticty
even though wages increase firms not able to reduce workers by very much as not substitutes out there
its difficult to substitiute
so demand for labour wage is inelastic
what does E stand for
Elasticty of demand for final product
If elasticity of demand for final product is inelastic and wages go up how will firms not respond
not gonna respond by cutting workforce significantly i,e proprtionatley less change in labour demand
why if firm has inelasttic demand product they wont cut workforce
can pass on high costs from higher wages via higher prices
the more price inelastic demand for the final product
the more wage inelastic Labour demand
what does C stand for
Cost of labour as a % of total costs
the greater the labour cosgs are as a % of TC the more ….
wage elastic demand will be
why is The greater that labour costs are as a % of TC the more wage elastic demand labour demand gonna be
As wages go up firms think TC increased massively so need to cut my workforce to maintian prfits
in terms of proportionality what happens if labour costs are as a % of TC are high
labour demand is elastic
so LD reduces proportionately more than the rise in wage
the more insignificant LC as a % of TC the more wage
inelastic labour demand will be
what does T stand for
Time Period
In LR all fop are variable so in the LR easier to bring in capital for a firm meaning labour demand becomes more
wage elastic
in the SR how hard is it to increase capital
difficult
in SR difficult to increase capital therefore labour demand is
more wage inelastic
