3.5 - Labour Market

Labour demand

Derived demand - demand for labour is dependent on the demand for the product.

Marginal revenue product of labour

The change in a firms total revenue as a result of employing one more worker.

MPP_L x MR

(Marginal physical product of labour) x (Marginal revenue.)

MPP_L

The change in total output that results from employing one more worker (i.e. how productive a worker is).

Marginal revenue

The change in total revenue that results from selling one more unit of output.

Elasticity of demand for labour

% change in QD_L/% change in wage rate

Elasticity of supply for labour

% change in QS_L/% change in wage

Monopsonist

A firm that is the only buyer of a certain type of labour e.g. army, NHS, teaching

Bilateral monopoly

Where unions (a monopoly of sellers of labour) negotiate with monopsonies (monopoly byers of labour) over wage rates.

Transfer earnings

Minimum amount that they are willing to accept to stay in their current job.

Economic rent

Amount paid above transfer earnings, excess of the minimum amount you’re willing to accept.

Wage discrimination

Employers with monopsony power pay different wages to different workers doing the same job.