3.5. Labour Markets.pdf - Edexcel Economics(A A-level Theme...

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Edexcel Economics (A) A-level Theme 3: Business Behaviour and the Labour Market 3.5 Labour Markets Detailed Notes
3.5.1 Demand for labour The demand curve for labour shows thequantity of labour that employers would wish tohire at each possible wage rate.Derived demand: Firms hire workers in order to produce goods to meet their aim, usually of making a profit.Therefore, the demand for labour is derived demand as it is derived from demand for theproduct the labour produces. Businesses only want the worker for as long as people arewilling and able to buy the product they produce. Factors influencing demand for labour: Wage rates:A wage is the price of labour and so has the same influence on demandfor labour as price has on the demand for a product. As wage rates increase,demand for labour contracts since the MRP of labour must be higher for it to beworthwhile employing more people, so less people are employed. Demand for the product:Since labour is a derived demand, if there is no demandfor the product, there is no demand for the labour. Firms won’t employ people if thegoods they make aren’t going to be sold and make a profit. An increase in demandfor the product leads to an increase in demand for labour. This is linked to theconcept of MRP: an increase in output or price of a good will increase demand for thelabour that produces that good. Prices of other factors of production:If machinery and equipment becomescheap, people will switch machinery for labour and therefore the demand for labourwill fall. Wages in other countries:If wages are lower in other countries and thereforewages in the UK are relatively high, people will be employed in other countries as itrepresents a lower cost for businesses. This means that demand in the UK is low.
Technology:Improvements in computers and technology means that many jobshave been lost with the work being done by machines. This means that there is lessdemand for labour, but demand for labour in technological based industries isincreasing. By 2040, about 47% of jobs could be lost to technology. Regulation:As laws are passed some jobs disappear, such conductors, whilst otherjobs are made. High regulation within the labour market is likely to discourage firmsfrom hiring since it can be very costly and time-consuming so this will reduce demandfor labour in these areas. France is a country that used to have high levels of labourregulation and this is something the new president, Emmanuel Macron, is trying tochange. Price elasticity of demand:This is the responsiveness of the quantity demanded of labour to the wage rate. Factors affecting PED of labour: It isdirectly correlated to the price elasticity of demand for the productthelabour produces. If the good is elastic, then a rise in wages and hence a rise in pricesfor consumers will have a large impact on the quantity the business sells. This willmean that the business will reduce the number of people it employs, in order to helpit make a profit.

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