Elasticity of Labour Supply

• What does the elasticity of labour supply measure?

  Elasticity of labour supply measures the extent to which labour supply responds to a change in the wage rate in a given time period.
• What is the wage elasticity of labour supply?

  The wage elasticity of supply of labour is the sensitivity of the supply of labour to a change in the wage rate.
• What is the wage elasticity of labour supply affected by?

  • specific skills and educational requirements
  • If the role has a significant vocational aspect
  • The time period under consideration
• How do specific skills and educational requirements affect the wage elasticity of labour supply?

  The more complicated the skills and the higher, or longer to achieve the qualifications required, the more inelastic the supply.
• How does the role having a significant vocational aspect affect the wage elasticity of labour supply?

  If the role has a significant vocational aspect, such as nursing, individuals are less sensitive to changes in pay making the supply is more inelastic.
• How does time period under consideration affect the elasticity of labour supply?

  In the short run, the supply curve of labour tends to be inelastic as it takes time for people to respond to changes in relative wages.
• What change will there be in the labour demand diagram if cashier (till) workers in a supermarket receive additional till training?

  There will be a shift out in labour demand. This is because they are better trained so could increase their output per hour e.g. serve more customers in the same time period. This leads to higher productivity which then leads to increased marginal product of labour.
• What change in the labour demand diagram will there be if labour costs are rising - the PED of product is more inelastic?

  There will be a shift out in labour demand.
• What change in the labour demand diagram will there be if there’s a higher price for the final (elastic) product?

  There will be a shift inwards in labour demand. This is because due to the higher price, there will be decreased demand leading to decreased derived demand for labour.
• What is meant by the marginal cost of labour?

  The additional cost incurred by firms for employing an extra unit of labour. It is obtained by dividing the change in the total cost of labour by the change in labour employment.
• If a firm can employ each additional worker at the same wage rate, then what happens to the AC and MC of labour?

  AC and MC of labour will be the same.
• If the firm has to pay higher wages to attract more workers, then what happens to the AC and MC of labour?

  The AC and MC of labour will be above ACL.