Elasticity of Labour Demand Essays -- Economics

Elasticity of Labour Demand Labour is a derived pack realised by the study for the product thatthe sweat get out be producing. The theory of crusade demand explainsthe behaviour of the firm with the key principle being to achieve theoptimal amounts of toil employers will want to utilise at differentwage levels.We moldiness make several assumptions when describing how the long runlabour demand is derived. Firstly we must assume that firms are profitmaximisers and therefore will attempt always to minimise any costsincurred. Further assumptions to simplify analysis of labour demandare that there are no costs of employment other than hourly wages andproductivity of labour is independent of time worked. I.e. Labour ishomogenous.The action process involves only two inputs, 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 groovy stock is non fixed at any level Kis now changeable as opposed to the s hort-run where the firm isburdened 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 than onetool to example in order to capitalize on profits. The only long runconstraint of the firm would be given by technology.To find the preferred election of inputs we can examine differentquantities of K and L given the ratio of the input prices with a levelof output. These choices are depicted in a wander called an isoquant.An isoquant demonstrates a set of points where output is identical butdifferent combinations of labour and capital are possible.Diagram IsoquantCriteria Isoquants are downward sloping Isoquants can not intersect A higher isoquant is associated with a higher level of output An isoquant must be convex to the origin (displaying diminishing returns to scale)The slope of the iso quant is derived by touching between two points onthe curve. Moving from A to B will maintain the level of output butchange the ratio of inputs. In this berth 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 thrust in employment levels. Private strategies are alsoaffected, as a unions bargaining strategy will be influenced by theelasticity. The more inelastic 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 political economy, 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, 2nd 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 No. 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), Neoclassical demand for labour functions for six major economies, Economic Journal, Vol 94, pp 788-99