Define the concept of elasticity of labour market

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Expert Solution

The elasticity of Labor market refers to the degree of responsiveness of percentage change in demand for labor with the percentage change in the market wage.

It depends on the following factors:

Labor and capital substitution-labor would be more elastic in case the firm can easily substitute between labor and capital whereas the elasticity would be lower in case the firm needs specialized labor inputs.As firm can easily switch capital in place of labor when the wages increases but when the wages in an industry which requires more labor such as hotel, the firm cannot just hire robots in place of labor for cleaning staff.

Labor in total cost-when the labor constitutes a greater portion of a firm's total cost then its demand would be more elastic with a change in wage than a firm where fixed capital constitutes more to total cost.

Market demand-when the demand for the product is more elastic,then the demand for labo would be more elastic because when the wage increases,the firm would be willing to hire less labor whereas in case of need for more specialized labor,the labor demand would be less elastic as the firm would still need its skilled labor to manufacture the goods.

Rahul Sunny answered 1 year ago

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