Elasticity of Labour Demand Essays -- Economics

Elasticity of childbed Demand Labour is a derived subscribe realised by the occupy for the product thatthe stab bequeath be producing. The theory of labour film explainsthe behaviour of the firm with the key principle being to achieve theoptimum amounts of labour employers bequeath want to utilise at different mesh trains.We must make several assumptions when describing how the retentive emissionlabour demand is derived. Firstly we must assume that firms be profitmaximisers and therefore ordain attempt always to minimise any costsincurred. Further assumptions to change analysis of labour demandare that there are no costs of involvement other than hourly wages andproductivity of labour is independent of time worked. I.e. Labour ishomogenous.The production process involves only cardinal 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 capital stock is not fixed at any level Kis n ow changeable as contend to the short-run where the firm isburdened with a stock of capital that top executive not be the optimal levelunder the current food 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 adept machine to use in order to capitalize on profits. The only long runconstraint of the firm would be given by technology.To pick up the preferred choice of inputs we can examine differentquantities of K and L given the ratio of the input prices with a levelof output. These choices are portrayed in a curve called an isoquant.An isoquant demonstrates a set of points where output is equal butdifferent combinations of labour and capital are possible.Diagram IsoquantCriteria Isoquants are downward sloping Isoquants can not intersect A higher(prenominal) isoquant is associated with a higher level of output An isoquant must be lentiform to the origin (di splaying diminishing returns to scale)The slope 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 depress 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 per cent 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 inelastic the employers demand for labour, thestronger the negotiations will be to agree a wage cut. Unions wouldbe more uncompromising when offered a lower wage.ReferencesBooks- Borjas, G. J. (2004), Labour Economics, 3rd Edition, McGraw-Hill- Hamermesh, D., Rees, A. (1988), The Economics of Work and Pay, 4th Edition, Harper & course of inst ruction- McConnel, C. R., Brue, S. L., (1989), Contemporary Labour Economics, 2nd Edition, McGraw-Hill Book CompanyWebsites- www.jstor.ac.uk- http//labour.ceps.lu/ diarys- Chiswick, C. U. (1985), The Elasticity of renewal 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 doer, Journal of Political Economy, Vol 70, pp 538-55- Symons, J. and Layard, R. (1984), Neoclassical demand for labour functions for six major(ip) economies, Economic Journal, Vol 94, pp 788-99