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 in return 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.
Remember that firms can choose between employing workers or capital.
Firms will only employ a worker if they are able to generate more additional revenue per hour (marginal revenue product) than the extra cost in wages.
Why is demand for labour downward sloping?
Marginal productivity theory states that a firm will hire a worker if their wage is below their marginal revenue product (MRP).
MRP is the extra revenue a firm can make if they hire one additional worker.
As wages increase, there are fewer workers who are able to generate an MRP that is high enough, so demand for labour decreases.
What are the factors (other than wage) that affect demand for labour?
- marginal revenue product of workers
- cost/ quality/ availability of capital
- demand for the final good or service
What is supply of labour?
The number of workers that are willing and able to work at each given wage.
Remember that workers can choose between working in a given labour market or working in a different labour market. Or, they could choose not to work.