Elasticity of labour curve

• What does the elasticity of labor demand measure in definition form?

  Responsiveness of labor demanded given wage change
• What does a wage elastic labor demand curve indicate?

  Proportionate change in labor demand exceeds wage change
• What does a wage inelastic labor demand curve indicate?

  Proportionate change in labor demand is less than wage change
• What mnemonic device helps remember the determinants of elasticity of labor demand?

  SECT
• What does the 'S' in SECT stand for?

  Substitutability of capital for labor
• How does the substitutability of capital for labor affect wage elasticity?

  More substitutable capital means more wage elastic demand
• If wages rise and firms substitute capital for labor, what happens to labor demand when capital is easily substituted?

  Labor demand decreases significantly
• If capital is not easily substitutable, how will firms respond to increased wages?

  Firms will reduce workers by a minimal amount
• What does the 'E' in SECT stand for?

  Elasticity of demand for the final product
• How does elasticity of demand for the final product affect wage elasticity of labor demand?

  Inelastic final product demand means inelastic labor demand
• If wages increase and the demand for the final product is inelastic, how do firms typically respond?

  Pass costs via higher prices
• What does the 'C' in SECT stand for?

  Cost of labor as percentage of total cost
• How does the proportion of labor costs to total costs affect labor demand elasticity?

  Greater proportion means more wage elastic demand
• If wages increase and labor costs are a large percentage of total costs, how will firms likely respond?

  Reduce workforce significantly
• If labor costs are an insignificant percentage of total costs, how does this affect wage elasticity?

  More wage inelastic labor demand
• What does the 'T' in SECT stand for?

  Time period
• How does the time period affect the elasticity of labor demand?

  Long run is more wage elastic
• Why is labor demand more wage elastic in the long run?

  All factors of production become variable
• Why is labor demand more wage inelastic in the short run?

  Difficult to increase capital quickly