3.5.1 Demand for labour

• Labour market:

  Where workers sell labour and employers buy labour.

  Demand comes from firms (they buy labour) and supply comes from workers (they sell labour). - Opposite to a product market
• Marginal revenue product (MRP):

  (w/ formula)

  The additional revenue gained when a firm employs an extra worker.

  MRP = marginal product x price

  Firms will be willing to employ an additional worker if their MRP > the wage rate.
• Causes for changes in demand for labour

  Demand for labour will ↑ if:

  1) Workers become more productive (higher MP) and therefore have a high MRP.

  2) The price of the final product rises and therefore MRP rises.

  3) The price of capital rises and therefore firms substitute labour for capital.
• Labour as 'derived demand':


  Labour is derived demand because the demand for labour is derived from (comes from) the demand for the final product.

  E.g. ↑ demand for online grocery shopping -> ↑ demand for delivery drivers.