Demand for and supply of labour, wage determination, wage differentials, and the effects of trade unions and minimum wages.
Demand for labour
The demand for labour is a derived demand — derived from the demand for the goods labour produces. A firm hires labour up to where the marginal revenue product (MRP) of labour — the extra revenue from one more worker — equals the wage. MRP = marginal physical product × marginal revenue. Demand for labour rises with higher product demand, higher productivity and lower relative costs of labour vs capital.
The wage elasticity of demand for labour is higher when labour is a large share of costs, when the product is price-elastic, and when capital can easily substitute for labour.
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