3.5.1 Demand for labour

current uk labour market issues

• increased technology-job loss

• strikes-tube

• zero hour contracts

• labour shortages - brexit

• youth and graduate unemployment

• gender pay gap

demand for labour graph

what type of demand is labour

derived demand

why id demand for labour derived demand 

as the demand for labour depends on the demand for goods/services

marginal revenue roduct

additional revenue gaines by the firm from employing one extra worker

marginal physical product

the extra output produced by one extra worker

MRP equation

MPP X price of good sold

marginal physical product in short run

in short run as we add more workers to a fixed amount of capital the MPP is assumed to rise until the law of diminishing marginal returns sets in

when will firms hire to with MRP

MRP= wages

factors influencing demand for labour

• consumer demand

• market rice of good/servce

• labour productivity 

• employment subsidy

• cost of capital equipment

• wage rate

how does price of product influence demand for labour

• If the selling price of the product increases, it increases the marginal revenue product of labour and the firm will demand more labour

• Higher priced products incentivise firms to supply more (law of supply) and demand for labour will continually increase with increasing prices

how does demand for product influence demand for labour

• As demand for labour is a derived demand, when an economy is booming, then demand for normal goods/services will be high, and the demand for labour will be high

• Conversely, when an economy is in a recession demand for normal goods/services will be lower, and the demand for labour will be lower

how does cost of capital machinery influence demand for labour

• Firms will regularly evaluate whether it is more cost-effective to switch production from using labour to capital (machinery)

• If it is more cost-effective, then demand for labour will fall

how does productivity of labour influence demand for labour

• If the productivity of labour increases (possibly through training), this will lower average costs, and firms will likely demand more labour

elasticity of demand for labour

responsiveness of demand for labour when there is a change in the market wage rate

elasticity of demand for labour equation

%change in quantity demanded / % change in wage rate

examles of elastic labour 

tourism,retail,cleaner

examles of inelastic laboyr

financial services,healthcare

factors affecting elasticity of labour demand

• labour costs as % of total costs

• availability of factor substitutes

• PED for final product

• time period

marginal cost of labour

cost of hiring one additional worker

number of jobs lost to technology 2040

47% of jobs in 2040