Labour Markets Flashcards
(21 cards)
Define Labour force
Number of people between 16-64 who are working or looking for work (willing and able)
Define Economically inactive
Individuals within working age who are either not willing or not able to work
Define dependency ratio
Dependents relative to the working age population
Define replacement ratio
The ratio of average weekly employment to the benefits an individual can earn without being in employment
Define Real earnings
Earnings (wages, bonuses, commissions) adjusted for inflation calculated using a base year.
Define derived demand in the context of labour
Demand for labour is dependant on the demand for the goods and services it produces
Define marginal revenue product of labour (MRPL)
What is MRPL equal to?
The change in total revenue as a result of hiring one more worker
=labour demand
Define MR
Change in total revenue as a result of increasing output by one unit
Define marginal physical product of labour
Change in total output as a result of hiring an additional worker
MRPL= x*y
x=
y=
x= MR y= MPPL
Define MCL
Change in total cost as a result of hiring one more worker
Why is labour demand curve downward sloping?
Marginal revenue will stay constant as we assume there is perfect competition.
Law of diminishing utility means that assuming cetirus paribus, the marginal physical product of labour will fall as output increases as all other factors of production are kept constant so they’ll be strained as output increases.
Where is employment set?
The profit maximising level - where MCL =MRPL
Why is MRPL>MCL not at equilibrium?
More revenue can still be gained because the revenue gained from hiring the next worker exceeds the cost of hiring them
- more profit can be made from hiring more workers
Why is MRPL
Because the cost of hiring the last worker exceeded the revenue it gained.
-more profit can be made if one less worker is employed.
Why would a firms demand for labour increase?
- the price/demand of the product the labour produces increases
- if MR or MPPL increases
How would MRL increase?
If the price of the good the labour produces increases
What are the weaknesses of MRPL theory?
- MPPL of an individual is difficult to measure especially because workers aren’t usually hired in isolation.
- It is difficult to measure output
- cetirus paribus doesn’t hold (e.g: capital could simultaneously be improving)
- Firms don’t increase on the margin
Define elasticity of demand for labour (WED)
The responsiveness of quantity of labour demand as a result of a change in wage rate
WED= %🔺in QD of labour/ %🔺wage rate
What are the determinants of WED (elasticity of demand for labour)?
Degree of ease in which labour can be substituted by another factor of production
Proportion of wage costs to total costs
PED of product
Elasticity of supply of complementary factors
Time frame o
Explain how the time frame affects the elasticity of demand for labour
In the long run demand for labour becomes more elastic
