Topic 16-The demand and supply of labour Flashcards
What does low price of labour mean for the demand of labour
Firms will demand more of it than when it is high
Demand for labour curve
Wage cost | .
| .
| .
| .
| .
|______________
Quantity of labour
Factors influencing the elasticity of demand for labour
- labour costs as a percentage of total costs
- substitutes
- labour costs as a percentage of total costs
- capital will tend to be inflexible in the SR
- The elasticity of demand for the final product
Factors which influence the demand for labour
- demand for final product
- price of capital (substitutes)
- the productivity of labour
- price of a product>higher price would encourage firms to increase their demand for labour as making more of a profits for, higher prices
- labour market regulations
Supply of labour curve
Wage cost | .
| .
| .
| .
| .
|______________
Quantity of labour
Participation rate
- Supply of labour depends on this
- the proportion of the population of working age who are in employment or seeking work
High wage rates lead to
Increase in the supply of labour as real wages rise more incentive for unemployed to accept jobs
Factors which influence the elasticity of supply for labour to a particular occupation or industry
- skills,acquisition and experience required: if these are high supply of labour= Inelastic
- level of unemployment if unemployment is high then supply is likely to be more elastic
Factors causing a shift in the supply curve for labour
- Net migration: a rise in immigration relative to emigration would cause a right shift in the supply curve
- the real wage in other occupations: lead to an increase in supply of workers in the occupation which has had a rise in real wages
- income tax rates:reduction in income tax rate>encourage people to go into work
- increase In benefits/job seekers allowance>fall in supply of labour
- improvement in working conditions
Demand of labour
Supply of labour
People needed to work by firms
People available and ready to work who look for jobs themselves
Derived demand
Demand which is dependant on the demand for a product
Minimum wage
A government set a minimum wage rate below which firms are not allowed to pay workers
Benefits of minimum wage
- People won’t be paid less than they deserve for the job they are doing therefore can’t exploit workers
- if minimum wage is low it doesn’t cost a lot for firm
- encourages firms to train workers as they cost more
- reduces voluntary unemployment if high
Costs of minimum wage
- if minimum wage is too high costs for firms will be too high and therefore they are less likely to hire workers
- decrease productivity because workers know they’re getting paid the minimum wage
- may not be enough to live on
Factors influencing the demand for labour:
- demand for the final product
- Productivity of labour
- Derived demand>if there is high demand for a product firms will want the workers that make the product (increasing in demand for labour right shift)
- if labour becomes more productive then this will lead to an increase in the demand for labour
Factors influencing the demand for labour:
- profitability of firms
- substitutes
- labour market regulations
- if firms are profitable, they can afford to employ more workers>demand for labour is high
- if labour is costing the firm more than substitutes e.g machinery would, the firms are likely to replace labour with capital.
- laws are put into place making it more difficult to hire and fire workers demand for labour will decrease
Factors influencing the elasticity for the demand for labour
- labour costs as a percentage of total costs
- substitutes
- when labour costs are a high proportion of total costs>demand for labour is more elastic.
- EVAL:in some capital-intensive manufacturing activities labour may only take up a smaller share of total production costs.
- If other factors of production such as capital (machinery) can be substituted for labour>elastic
- capital will tend to be inflexible in the SR
- The elasticity of demand for the final product
- if a firm faces an increase in wages, it may have little flexibility in substituting towards capital in the short run, so the demand for labour may be relatively inelastic.
- elastic demand for goods>firms will not be able to pass on high wage costs to consumers through higher prices and demand for labour will be elastic.
Effects of government intervention
-Unemployment benefits:
lowering unemployment benefits>^supply of labour
Eval: this policy needs to be balanced against the need to provide protection for those who are unable to find employment&cant be lowered to a point where people do not quit their job to find new ones.
-Incentive effects:
High income tax>low supply of labour as some people may not want to pay high taxes
