Labour Markets | A-Level Economics Notes
These revision notes cover everything you need to know about Labour Markets for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.
What is a labour market?
A labour market is a place where workers and firms meet to exchange labour for a wage.
What is demand for labour?
Demand for labour is the number of workers that firms are willing and able to hire at each given wage.
What is marginal physical product of labour?
Marginal physical product (MPP) is the change in output from hiring one extra worker, assuming all other factors of production are unchanged.
What is marginal revenue product of labour?
Marginal revenue product (MRP) is the change in total revenue from selling the extra output produced from hiring one extra worker, assuming all other factors of production are unchanged.
Why is demand for labour downward sloping?
The demand curve for labour is downward sloping.
Firms would be willing and able to employ an additional worker if their MRP is greater than their wage.
In the short-run, the demand curve for labour is downward sloping due to the law of diminishing returns. As more and more variable factors (workers) are added to the same fixed factor (land), marginal returns decrease.
In the long-run, the demand curve for labour is downward sloping due to firms being willing and able to hire less workers at higher wages as it becomes more sensible to employ capital instead.
What are the three non-wage factors that affect demand for labour?
The three factors that can cause the demand curve for labour to shift are:
- productivity of workers
- capital (cost/quality/availability)
- demand for the final good or service
What is supply of labour?
Supply for labour is the number of workers that are willing and able to work at each given wage.