Labour Market Elasticities

• what is the elasticity of demand for labour?

  how responsive demand for labour is to changes in wage
• What affects elasticity of labour demand?

  substitutes, percentage of total cost and time
• what happens to elasticity of labour demand when there lots of substitutes for workers?

  demand becomes elastic, so equilibrium price is a lot lower
• if there are less substitutes, what happens to the elasticity?

  it is inelastic, so equilibrium price is higher
• if wages take up a small % of total cost, what is the elasticity of demand for labour?

  inelastic -  if workers wages increase by a lot, firm’s won’t care much because wages are such a small % of their costs. So demand will be unresponsive to changes in wage.
• In the short run, if wages increase, what is the elasticity of demand for labour?

  inelastic - not enough time to find substitutes such as capital to replace staff
• what does an elastic labour supply show?

  workers more responsive to changes in wage
• what does an inelastic labour supply show?

  workers less responsive to changes in wage
• what affects the elasticity of labour supply?

  skills + qualifications, unemployment levels and time
• What happens to the elasticity of labour supply if there are few skills and qualifications?

  supply of worker is elastic (easier to get employed). this leads to a lower equilibrium wage.
• How does a high unemployment rate affect elasticity of labour supply?

  workers are responsive to changes in wage and will join the labour market, increasing supply of labour, creating elastic supply. This leads to a lower equilibrium wage.
• How do low unemployment rates affect the elasticity of labour supply?

  A lower rate of unemployment means that the quantity of labour increases by a bit if wages increase meaning that labour is unresponsive to changes in wages, creating an inelastic labour supply and a higher equilibrium price.
• In the short run when wages increase, what happens to the elasticity of labour supply?

  inelastic because there’s very little time to apply and train for the job