Demand For Labour
Economic theory suggests demand for labour depends on the Marginal Revenue product of a worker.
Definition: Marginal Revenue Product of Labour ( MRP)
This is the extra revenue a firm gains from employing an extra worker. It depends on a workers productivity (PPP) and the Margainal Revenue (MR) of last good sold.
Definition Marginal Physical Product (MPP)
This is the extra output that an extra worker produces .
- Due to the law of diminishing returns, in the short run, there is usually a diminishing marginal return when increasing the number of workers
Marginal Revenue (MR)
This is the revenue that a firm gains from selling the last unit of output. It is closely related to the price of the good sold.
Therefore the Demand for Labour depends upon
- The productivity of labour MPP
- The demand for the good
- The wage rate, strictly this is the MC
Diagram of: Wage Determination in Competitive Labour Markets
- The industry wage is determined by supply and demand.
- An individual firm in a perfectly competitive labour market is a wage taker. Therefore, its supply curve is elastic.
- The firm maximises profits where MRP of workers equals the Marginal cost of employing them.
Essays and Revision Notes on Labour Markets
- Labour Markets home
- Demand for Labour
- Supply of Labour
- Wage Determination
- Labour Market Imperfections
Flexible Labour Markets
- Flexible Labour Markets
- Adv and Disadvantages of Flexible Labour Markets
- Increasing Labour Market Flexibility
- Changes UK Labour Markets
- Participation Rate
- Trades Unions
- Ageing Population
Minimum Wages
Fast Delivery By Email!
