3.5.1

• The demand for labour is a derived demand, meaning that the demand for labour is dependent on the demand for the final goods/services that they produce
• if there is high demand for the final goods/services they produce, labour will be more demanded
• when demand for a final goods falls, demand for labour will fall
• demand for labour increases when workers become more productive and have better skills
• firms can choose to use capital or labour - but capital is more expensive so firms will demand more labour
• marginal revenue product is the additional income earned from selling a product
• when MRP increases there is an increase in labour as firms will want to gain additional income from more products being produced and sold
• when MRP of labour falls, workers are getting rid off because there is no benefit from them. Getting rid of these workers increases MRP
• factors influencing demand for labour:

  • wage rate
  • demand for the product
  • prices of other factors of production
  • wages in other countries
  • technology
  • regulation
• a wage is the price of labour
• as wage rates increases, demand for labour decreases since the MRP of labour must be higher for it to be useful to employing new people. therefore, less people are employed
• since labour is a derived demand, if there is no demand for the final good, there is no demand for the labour
• firms wont employ people if the goods they make aren’t going to be sold and make a profit
• increase in demand for final good increases MRP (as output + price changes with demand) so demand for labour that produces the final good increases
• if capital become cheap, firms will replace labour with capital - so demand for labour decreases
• If wages are lower in other countries and wages in UK are higher, firm will employ people in other countries as its a lower cost for a firm. So demand for UK labour is low
• in 2008, the Eastern European Bloc joined the EU - Eastern Europeans moved to UK to work for higher wages and sent remittances back home
• Improvements in technology means more more job losses as work can be done by machines. But demand for labour in technological based industries is increasing (people needed to maintain machines .etc)
• By 2040, about 47% of jobs could be lost to technology
• high regulation in the labour market discourages firms from hiring as it becomes more costly and time consuming. This reduces labour demand in areas with high regulation
• France used to have high levels of labour regulation but President Macron is trying to make France more attractive for FDIs through minimal regulation
• worker visa: employer sponsors your visa
• open visa: UK has 20 countries that they encourage workers to come from and work. These 20 countries have good education and English fluency