Economics Labour Market

What is derived demand ?

Derived demand refers to the demand for a factor of production that results from the demand for the goods or services that the factor produces. For example, the demand for labour is derived from the demand for the products that labour helps to create.

What are the 2 reasons why the DL curve is sloped ?

Income effect: As wages rise, employers will employ less workers if they have a fixed budget they can spend on labour

Substitution effect: As wages rise, it becomes more attractive for firms to use more capital eg.machines and less workers

What is the Marginal Revenue Product of Labour (MRPL) theory?

Marginal Revenue Product of Labour = Marginal Physical Product x Marginal Revenue

MPRL also = DL

so… an increase in either the marginal physical product or marginal revenue will lead to an increase in the demand for labour

What are the 5 reasons for an change in the demand for labour ?

• A change in demand and expected future demand for the firms products + revenue that can be earned from it

• A change in the price being paid for the product produced ( an inc in price leads to an inc in DL)

• A change in the productivity of labour ( the higher the output, the more attractive labour is as a resource)

• A change in complementary labour costs

• A change in the price of a substitute factors of production

What is the WEDL ? Formula ?

The responsiveness of a firms quantity of labour demanded to a change in the wage rate in a given occupation

%change in quantity of labour demanded

---

%change in wage rate

Is the figure for WEDL pos or neg and why ?

Negative as its an inverse relationship

Wat number is WEDL elastic in demand ?

Greater than 1

A change in the wage rate will lead to a more than proportional change in the quantity of labour demanded

What are the factors that determine the WED ?

S - availability of Subsititute factors of production

T - Time

E - PED of the final product

P - Proportion of total costs that are labour costs

What factors of WED would make the procdut wage inelastic in demand ?

• Low proportion of total costs are wage costs

• The PED of the final product is inelastic

• Labour is not easily substitutable for capital

• Short run it will be more inelastic

Where does the supply of labour come from ?

Households

What are the 8 factors that affect the supply of labour ?

• Net advantages to the job

• Barriers to the occupation caused by the level of qualifications required

• Difficulty in accessing qualifications

• Wage and non-wage benefits of an alternative occupation

• Labour migration

• Income tax + benefits

• Presence of trade unions

• Social trends

What is the wage elasticity of supply of labour (WESL) and the formula ?

The responsiveness of labour supply to a change in the wage rate of a given occupation

%change in quantity of labour supplied

---

% change in wage rate

What are the 4 factors that affect the WESL ?

QU - qualifications

I - Immobility

L - Length of training

T - Time period

What would make WESL Inelastic ?

• Higher amount of qualifications needed

• More immobile

• Longer the length of training

• Short run

What assumptions are made about a competitive market ?

• Many buyers (firms) and sellers (households) of labour services

• Perfect information for both parties

• Perfect mobility between jobs

• no government failure

• no labour market failure

Would wages be high when labour is high/low and inelastic/elastic ?

High and inelastic

What is a wage differential ?

The differences in wages

When does labour market failure occur ? what is the main reason ?

When the market forces of demand and supply do not result in an efficient allocation of labour resources

Main reason is immobility of labour