Labour Market Flashcards
What does the demand for labour show
How many workers an employer is willing and able to hire at a given wage rate in a given time period
In the theory of competitive labour markets where does the demand curve of labour come from
The estimated marginal revenue product of labour (MRPL)
Formula for MRPL
Marginal product of labour X marginal revenue
What is MRPL
The change in revenue from the output produced by the extra worker employed
Problems with using the MRPL
- measuring labour efficiency / productivity can be difficult
- difficult to establish the productivity of individual workers
- some people have the ability to set their own pay e.g. self employed and directors of businesses
What is derived demand
The demand for a factor of production used to produce another good or service
What is MRPL
The change in revenue from the output produced by the extra worker employed
Problems with using the MRPL
- measuring labour efficiency / productivity can be difficult
- difficult to establish the productivity of individual workers
- some people have the ability to set their own pay e.g. self employed and directors of businesses
What is derived demand
The demand for a factor of production used to produce another good or service
What does the elasticity of labour demand measure
The responsiveness of demand when there is a change in the wage rate
What does the elasticity of labour demand depend on
- labour costs as a % of total costs
- ease and cost of factor substitution
- PED for the final product (pass costs onto consumers)
- time period (easier to switch factor inputs in the LR)
What causes the labour demand curve to shift
- Rise in consumer demand
- Change in market price of output
- Increase in productivity
- Government employment subsidy
- Change in the cost of capital equipment
Why does an increase in the productivity of labour create a shift in the labour demand curve
It makes labour more cost efficient than capital (higher productivity increases the marginal product of labour)
