Labour Markets (3.5) The demand for labour (derived demand) . Derived from demand for goods and services · Aggregate demand; - Influenced by level of economic activity - Trade cycle - Expanding economy · Demand for labour in individual markets; - Determined by MRP of labour, meaning the maximum price a firm would be prepared to pay for an extra unit of labour employed - MRP = Marginal revenue productivity; formula is TPP (total physical product) x MR · MRP of labour will increase if; - There is a rise in productivity of labour - There is a rise in the price of a substitute factor of production - There is a fall in the price of a complimentary factor of production - Demand curve would shift right · Elasticity of Demand for labour - % change is QD/% change in wage rate; - Depends on availability of substitutes - ED of product - Proportion of TC accounted for by labour costs - Period of time The supply of labour · Aggregate supply; - Not the same as level of population - A measure of the number of hours work offered at given wages over a given period of time - Determined by the number of workers and the average number of hours each worker is prepared to offer · Number of workers and hours offered depends on; - Size of population in total - Age composition of the population - The labour force - The working week and holidays - Pay . The supply of labour to a given occupation, other considerations; - Working conditions - Promotion chances - Job security - Number of days holiday - Working hours - Possibility of high earnings/fame · Elasticity of Supply of labour is determined by; - Level of employment - Mobility of labour - Length of training - Qualifications and skills required
. In Microeconomics, you can look at an individual's supplies of labour - substitution and income effect Wage Rate determination · Equilibrium diagram; - Shifts in D/S for labour - SUPPLY depends on alternative wage rates in other industries % non-monetary aspects changing - DEMAND depends on shifts in demand for final product, changes in price of related FOP, productivity changes Imperfect Labour market . The market is assumed to be perfect; - Employers compete to hire workers - Workers actively compete to sell their labour · However, this doesn't consider factors such as; - Trade union power - Monopsony buyers of labour