Elasticity of Labour Demand Essays -- Economics

Elasticity of advertise Demand Labour is a derived quest realised by the demand for the product thatthe bray forget be producing. The theory of labour demand explainsthe behaviour of the cockeyed with the signalize principle being to achieve the best amounts of labour employers will exigency to utilise at differentwage takes.We must make some(prenominal) assumptions when describing how the vast runlabour demand is derived. Firstly we must bring that firms are profitmaximisers and therefore will attempt always to play down any costsincurred. Further assumptions to simplify analysis of labour demandare that there are no costs of mesh other(a) than hourly wages andproductivity of labour is independent of time worked. I.e. Labour ishomogenous.The work process involves only two infixs, Labour (L) andCapital (K)The firms production functions in the short and long runqSR = f(K, L)qLR = f(K, L)In the long run, the firms enceinte blood line is not fixed at any level Kis at a time diversify adapted as opposed to the short-run where the firm is burden with a stock of capital that might not be the optimal levelunder the current market conditions. In the indeterminate long runperiod, the firm will therefore be able to select optimalcombinations of its variable stock. A firm will now have more than onetool to use in couch to capitalize on profits. The only long runconstraint of the firm would be given by technology.To find the preferred choice of inputs we weed examine differentquantities of K and L given the ratio of the input prices with a levelof output. These choices are depicted in a burn called an isoquant.An isoquant demonstrates a set of points where output is identical solelydifferent combinations of labour and capital are possible.Diagram IsoquantCriteria Isoquants are downward sloping Isoquants whoremaster not intersect A higher isoquant is associated with a higher level of output An isoquant must be convex to the origin (displaying dimini shing returns to scale)The angle of the isoquant is derived by moving between two points onthe curve. Moving from A to B will maintain the level of output butchange the ratio of inputs. In this case it will lower the capitalstock from K1 to K2 but increase the level of employment from L1 to L2.Output is decreased by the units of capital stock cut multiplied bythe marginal product of capital, but i... ...as I have summarised), a one percent rise in the wage leads to a 30per cent drop in employment levels. Private strategies are alsoaffected, as a unions bargaining strategy will be influenced by theelasticity. The more nonresilient the employers demand for labour, thestronger the negotiations will be to oppose a wage cut. Unions wouldbe more uncompromising when offered a lower wage.ReferencesBooks- Borjas, G. J. (2004), Labour economic science, 3rd Edition, McGraw-Hill- Hamermesh, D., Rees, A. (1988), The Economics of Work and Pay, 4th Edition, Harper & Row- McConnel, C. R., Brue, S. L., (1989), Contemporary Labour Economics, second Edition, McGraw-Hill Book CompanyWebsites- www.jstor.ac.uk- http//labour.ceps.lu/Journals- Chiswick, C. U. (1985), The Elasticity of Substitution Revsited The effects of secular changes in labour force structure, Journal of Labour Economics, Vol 3 nary(prenominal) 4, pp 490-507- Oi, W. (1962), Labour as a quasi-fixed factor, Journal of Political Economy, Vol 70, pp 538-55- Symons, J. and Layard, R. (1984), classic demand for labour functions for six major economies, Economic Journal, Vol 94, pp 788-99