3.5.1 - Demand for labour

• The demand curve for labour shows the quantity of labour that employers would wish to hire at each possible wage rate.
• Derived demand: Firms hire workers in order to produce goods to meet their aim, usually of making a profit. Therefore, the demand for labour is derived demand as it is derived from demand for the product the labour produces. Businesses only want the worker for as long as people are willing and able to buy the product they produce
• If the demand for labour is inelastic wages will be high whereas id demand is elastic wages will be low
• Elasticity of labour demand

  1. Substitutes.
  2. Percentage of total cost.
  3. Time.
• If demand is easy to substitute, therefore the demand of labour is elastic.
• Factors influencing demand for labour

  • wage rates
  • Demand for the product: Since labour is a derived demand, if there is no demand for the product, there is no demand for the labour. Firms won’t employ people if the goods they make aren’t going to be sold and make a profit
  • Prices of other factors of production
  • Wages in other countries
  • Technology
  • Regulation
• When wages make up a small percentage of total costs the demand of labour will be inelastic
• When wages take up a high percentage of total costs the firms demand will be elastic
• Time

  • In the short run if wages increases firms will be unresponsive to the change, as they wouldn't be able to find substitutes or capital. Therefore firms demand for labour is inelastic