3.5.1 Demand for labour

• Demand for labour is derived

  -It depends on the demand for goods/services

  
  

  -The demand for labour derives directly from the demand for the product of labour.
• Demand for labour is derived - 2

  -The greater the demand for the product, the greater the demand for labour

  
  

  -No matter how skilful or how long the period of training, if what they produce is not in demand, then their services will no longer be required
• The demand for labour is inelastic if:

  -The demand for the product produced by labour is INELASTIC, a big change in wage rates will lead to a smaller change in employment levels.

  -Wage costs is a small proportion of total costs

  -It's difficult to substitute with other workers or capital

  -The workers have specialised skills which are considered necessity
• The demand for labour is elastic if:

  -The demand for the product produced by labour is ELASTIC, a slight change in wages leads to a greater change in employment levels

  -Wage costs is a large proportion of total costs

  -It is easier to substitute with other workers or capital
• Factors That Influence The Demand for Labour

  -The productivity of labour: If productivity increases, it will lower average costs and firms will likely demand more labour

  
  

  -The demand for the final product: If the economy is booming then demand for most goods/services will be high and the demand for labour will be high

  
  

  When an economy is in a recession demand for most goods/services will be lower and the demand for labour will be lower
• Factors That Influence The Demand for Labour - 2

  -The price of the product being produced: 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