1. Wage elasticity of demand for labour
The Labour Market
Wage elasticity of demand for labour

2. The Wage Elasticity of Demand for Labour
Measures the responsiveness of the quantity of demand for labour to changes in the wage rate.
It is measured thus:-
WEDL = percentage change in the demand for labour
Percentage change in the wage rate

3. The Wage Elasticity of Demand for Labour
Inelastic WEDL
Elastic WEDL
Following a rise in national insurance by 3%, the demand for teachers fell by 1%.
Calculate the WEDL
Interpretation
Following a rise in the Living Wage of 3%, the demand for cleaners fell by 5%.
Calculate the WEDL
Interpretation

4. An elastic demand curve for labour
Wage rate/MRP
A 10% change in the wage rate would cause a more than 10% change in the demand for labour.
Time:- where it is easy to ‘hire and fire’ workers.
Availability of substitutes:- where it is easy to substitute workers for more capital intensive methods.
The proportion of labour cost to total cost:- Where labour makes up a large proportion of the cost of production.
The elasticity of demand for the product:- a change in the demand for a product where people are quick to move to, or away from it, will see labour dramatically change too.
MRP = D
Quantity of labour

5. An inelastic demand curve for labour
Wage rate/MRP
A 10% change in the wage rate would cause a less than 10% change in the demand for labour.
Time:- where contracts exist making it difficult to terminate worker contract.
Availability of substitutes:- where few opportunities exist to substitute workers for more capital intensive methods. The reasons may be technology or financial.
The proportion of labour cost to total cost:- Where labour makes up a small proportion of the cost of production.
The elasticity of demand for the product:- a change in the demand for a product where people are slow to move to, or away from it, will see little change in labour quantity.
MRP = D
Quantity of labour