Demand for Labour

• What is the labour market?

  The labour market is a FACTOR MARKET - it provides a means by which employers find the labour they need, whilst millions of individuals offer their labour services in different jobs.
• The demand for labour is a derived demand. What does this mean?

  It depends on the demand for the goods and services that labour produces.
• What are some of the factors that influence the demand for labour?

  • The price of the good or service
  • Productivity of labour
  • Cost of labour
  • The cost and availability of substitutes
  • The level of technology
  • The level of government regulation
  • The level of economic activity

  The demand of labour is a complex issue, and the factors that influence it can vary depending on the specific industry or sector.
• How is the price of the good or service a factor that influences the demand for labour?

  The higher the price of the good or service, the more profitable it is for firms to produce it, and the more labour they will demand.
• How is the productivity of labour a factor that influences the demand for labour?

  The more productive workers are, the more output they can produce per hour, and the more labour they will demand.
• How is the cost of labour a factor that influences the demand for labour?

  The higher the cost of labour, the less profitable it is for firms to hire workers, and the less labour they will demand.
• How is the cost and availability of substitutes a factor that influences the demand for labour?

  If there are good substitutes for labour, such as capital or automation, firms will be less likely to demand labour.
• How is the level of technology a factor that influences the demand for labour?

  The higher the level of technology, the more productive workers can be, and the more labour firms will demand.
• How is the level of government regulation a factor that influences the demand for labour?

  The more regulations there are on businesses, the more costly it is for them to operate, and the less labour they will demand.
• How is the level of economic activity a factor that influences the demand for labour?

  The higher the level of economic activity, the more goods and services are being produced, and the more labour firms will demand.
• What does the demand for labour show?

  The demand for labour shows how many workers an employer is willing and able to hire at a given wage rate in a given period of time.
• What is the relationship between demand for labour and the wage rate?

  There is an inverse relationship between demand for labour and the wage rate.
• What does it mean if the wage rate is high?

  It is more costly to hire extra employees.
• What happens when wages are lower?

  When wages are lower labour becomes relatively cheaper than capital. A fall in the wage rate might create a substitution effect and lead to an expansion in labour demand.
• What does the demand for labour diagram look like?

  DIAGRAM BELOW:

  
• What does the demand curve for labour tell us?

  The demand curve for labour tells us how many workers a business will employ at a given wage rate in a given period of time.
• What is meant by marginal revenue product of labour?

  An extra revenue generated when an additional worker is employed.
• how is it assumed that firms will choose a level of employment?

  Firms are assumed to be profit maximisers and they will choose a level of employment that maximises profit.
• What does the MRPL represent?

  The MRPL curve is the demand curve for labour.
• When does the MRPL fall?

  The MRPL falls when diminishing returns sets in.
• What are the problems with estimating MRPL for workers?

  • Assume they maximise efficiency
  • Hard to quantify output
  • Measuring labour efficiency/productivity can be difficult -> e.g. in education
  • Collaborative work makes it difficult to establish the productivity of individual workers
  • Many people have the ability to set their own pay e.g. the self-employed and directors of businesses
• What is the MRPL?

  The MRPL is the change in revenue from the output produces by the extra worker employed.
• In factor markets, where is the demand for labour derived from?

  From the demand for the output of goods and services.
• What is meant by derived demand?

  • Derived demand is the demand for a factor of production used to produce another good or service.
  • When the economy is growing more strongly, many businesses will be looking to hire extra workers to supply increased output.
  • During a recession or a prolonged economic slowdown, the demand for labour tends to fall causing a rise in cyclical unemployment.
• The labour demand curve SHIFTS when there is a change in what?

  1. A rise in final CONSUMER DEMAND which means that a business needs to take on more workers.
  2. A change in the MARKET PRICE OF THE OUTPUT that labour is making.