Presentation on theme: "Labour Market: Elasticity of Demand"— Presentation transcript:
1 Labour Market: Elasticity of Demand A2 Economics
2 Aims and Objectives Aim: To understand labour market demand elasticity and its determinantsObjectives:Define elasticity in the labour market.Explain the factors affecting the elasticity of demand.Analyse the supply of labour in the UK.Evaluate how governments can influence the demand or supply of labour.
3 Starter Define elasticity of demand. Write the equation to calculate elasticity of demand.
4 Elasticity of Demand for Labour Definition: The responsiveness of quantity demanded of labour to a change in the wage rate. Equation: Elasticity of Demand for Labour = Percentage change in qty labour demanded Percentage change in wage rate
5 Determinants of Labour Demand In groups decide on the factors you feel determine the elasticity of demand for labour. Be prepared to justify your answer.Labour DemandABCD
6 Determinants of Labour Demand Availability of SubstitutesTime PeriodThe Proportion of Labour Cost to Total CostElasticity of Demand for Product
7 Availability of Substitutes The easier it is to substitute other factors of production for labour, the more a rise in real wage rates will lead to firms replacing employees with machinery.E.g. Self Service Machines or Car Manufacturing.
8 Time PeriodLong Run: Easier to substitute labour for other factors of productionShort Run: firms may not have enough time to re-organise themselves, and so have to maintain their levels of employmentContracts: workers have contracts which are expensive to terminate or change, deterring firms from making redundancies.
9 Elasticity of Demand for Product How would elasticity of demand differ between cigarettes and orange juice?Labour is a derived demand.Therefore if demand for a product collapses, then the demand for labour will fall too!The elasticity of demand for labour in an industry mirrors that of the elasticity of demand for the product/s the industry produces.
10 Proportion of Labour Cost to Total Cost Higher the proportion of labour cost to total cost the greater the elasticity of demand for labour.An increase in wages will have a large impact on total costs.
11 Elastic Demand For Labour Wage RateW2W1D=MRPQ2Q1Quantity of Labour
12 Inelastic Demand For Labour Wage RateW2W1D=MRPQ2Q1Quantity of Labour
13 Plenary Define elasticity of demand for labour. Describe what factors influence the elasticity of demand for labour.Draw an elastic labour demand curve and an inelastic labour demand curve.What are the effects of mechanisation on the elasticity of demand for labour?