The labour market: demand and supply Flashcards
What is derived demand?
Occurs when the demand for a factor of production arises from the demand for the output it produces
What does the aggregate demand for labour depend on?
The level of economic activity
What does the individual firms demand for labour depend on? (3)
The price of labour
Productivity
Price of other factors of production
What is the marginal revenue product? (MRP)
The value of the physical addition to output arising from hiring on extra unit of a factor of production
What is the marginal product of labour?
The change in total output arising from hiring one more worker
What causes a shift in demand for labour?
A change in the MRP
e.g- training, productivity
What is the elasticity of demand for labour?
The responsiveness of quantity demanded of labour to a change in the wage rate
What is the equation for the elasticity for demand for labour?
% change in quantity of labour demanded/ % change in wage rate
What are the factors that determine the elasticity of demand for labour? (3)
Availability of substitutes
Elasticity of demand for the product
The proportion of labour cost to total cost
How does availability of substitutes determine the elasticity of demand for labour?
If there are plenty of substitutes, then the elasticity of demand for labour will be high
How does the elasticity of demand for the product determine the elasticity of demand for labour?
Derived demand
If the product has high demand, so will labour
How does the proportion of labour cost to total cost determine the elasticity of demand for labour?
The larger the proportion of labour cost to total cost, the higher the elasticity of demand for labour
Who are the economically inactive?
The % of the population who are either not in work nor seeking it
What are monetary factors?
The financial rewards to a particular occupation
What are non monetary factors?
The non financial rewards to a particular occupation
What are some examples of non monetary rewards? (3)
Status
Job security
Holidays/leisure time
What is net advantage?
The overall rewards to a particular occupation, taking into account both monetary and non-monetary factors
What does the supply of labour to a particular firm depend on? (4)
Availability of training
Location
Level of unemployment
Opportunities for overtime work
What is unemployment?
The number of people of working age who do not currently have a job but are actively seeking work at existing wage rates
What causes a movement along the labour supply curve?
A change in wage level
What is the elasticity of supply of labour?
The responsiveness of quantity of labour supplied to a change in wage rate
What is the equation of the elasticity of supply of labour?
% change in quantity of labour supplied/ % change in wage rate
What does the elasticity of labour supply depend on? (3)
The skills and qualifications required
The length of training period
Sense of vocation
How does the skills and qualifications required determine the elasticity of labour supply?
Jobs that require high skills will find it more difficult to attract workers when the wage rate rises
Elasticity will be lower for low skilled jobs
How does the length training period determine the elasticity of labour supply?
Jobs with longer training periods will have lower elasticities because workers may be put off
How does sense of vocation determine the elasticity of labour supply?
Jobs which have a vocational element will tend to be inelastic
What is the backward bending supply curve?
The individual labour supply curve is thought to be this shape because it is assumed workers will prefer to work fewer hours as their income increases above a certain level
What is the income effect?
Depending upon an individuals target level of income, they can work fewer hours for the same overall pay
What is the substitution effect?
Individuals will tend to choose to work more hours, as the opportunity cost of leisure increases
