THE DEMAND FOR LABOUR 1. Output factors 2. The productivity of labour 3. Input factors

2. T HE PRODUCTIVITY OF LABOUR The productivity of labour can be defined as the output per unit of labour per unit of time Labour productivity = total output/labour input Labour productivity depends on the level of education, skill health and level of motivation

2. T HE PRODUCTIVITY OF LABOUR ( CONTINUED ) An increase in labour productivity will have either a positive or negative impact on the demand for labour 1. If aggregate demand is rising at a faster rate than the increase in productivity, businesses will increase their demand for labour 2. If aggregate demand is unchanged, but labour productivity is rising, businesses can cut back on workers and still produce the same output as they did before 3. If aggregate demand is falling, but labour productivity is rising, demand for labour will fall even more

2. T HE PRODUCTIVITY OF LABOUR ( CONTINUED ) In the long run, however higher labour productivity will make labour a more attractive input to production than other factors of production

I NPUT FACTORS AND THE DEMAND FOR LABOUR The combination of labour and capital If the cost of labour is high, firms will use more capital If the cost of labour is low, firms will make use of labour Thus, in determining the ratio of labour to capital, firms will measure the full cost of labour against the full cot of capital investment

T HE COST OF LABOUR V. T HE COST OF CAPITAL AND THE DEMAND FOR LABOUR Firms can substitute between labour and capital in production. So then, what is the cost of labour? 1. Wage rates 2. Labour on-costs  Long service leave  Sick leave holiday pay  Workers compensation  Superannuation Firms can substitute between labour and capital in production. So then, what is the cost of capital? 1. The interest rate

L ABOUR DEMAND AND OVERSEAS M ARKETS A firm might consider the option of shifting some of its operations overseas, especially if labour costs are lower elsewhere Therefore the demand for labour in certain industries will be influenced by the cost and productivity of foreign labour as well

Y EAR 11, COMPLETE THE FOLLOWING TABLE : F ACTORS INFLUENCING LABOUR DEMAND Output factorsInput factors