Plan
1. simple model labor demand.
2. Scale effect and substitution effect in the demand for labor.
3. Elasticity of demand for labor and the laws of derived demand.
4. fixed costs and demand for labor.
Demand for labor defined as the amount of labor that employers are willing to use in a given period of time for a given rate wages. The demand for labor as a factor of production is a derived demand: labor is required to be used in the production of goods and services, and the decision on the amount of labor used is the reverse side of the decision on the amount of production of the good.
simple model demand for labor is based on the following premises:
a) The objective function of the firm is profit maximization.
b) The behavior of the firm is described production function two-factor type, factors - labor and capital.
c) The firm operates in a competitive goods market and a competitive labor market.
d) The firm's labor costs consist only of employees' wages.
In the short run, the firm has a fixed amount of capital as a factor of production and decides on the volume of use of only one factor - labor.
The production function can be represented as a function of only one factor of production - labor:
Q = f(L,K) or Q = f(L),
where Q is the volume of production;
L - labor factor;
K is the capital factor, which is basically constant over a given period of time.
The marginal money product of labor is equal to the marginal cost of labor equal to wages. Profit is maximized when the marginal product of labor in kind equals the real wage. If the marginal product of labor exceeds the real wage, then it is profitable for the employer to continue hiring workers until they are equal. If the marginal product of labor is less than the real wage, then it is beneficial for the employer to lay off part of the workers, that is, to reduce the amount of labor used to a level at which the marginal product will be equal to the marginal cost of labor.
W
marginal product curve
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Demand for labor
Rice. 2. Marginal product of labor and the demand curve for labor
Thus, the volume of hired labor depending on wages is determined through the marginal product of labor, and the demand curve for labor in the short run is equal to the curve of the marginal product of labor.
In the long run, the volume of demand for labor is determined by the condition that the ratio of the marginal product of labor to the marginal cost of labor and the ratio of the marginal product of capital to the marginal cost of capital are equal.
On the Russian market labor there is a bunch of factors that discourage the demand for labor.
v Protect existing jobs. This is good for those who settled on them (“insiders”), but bad for the modernization of the economy, the creation of new jobs, innovative industries and the growth of labor productivity. As a result, overall employment is lower, and its quality is worse.
v Some believe that a steady increase in the minimum wage is almost the main road to the general welfare. Welfare is created by high labor productivity, and not by pre-election redistribution in favor of the least qualified part work force. The centralized increase in the unified minimum wage shifts the salary scale for all workers, and not just for the low-paid. Raising the cost of labor, this reduces the aggregate demand for it. But not everyone will “pay” for the minimum wage and not immediately. First of all, this applies to enterprises light industry and Agriculture, in which the share of labor in costs is high with zero or negative profitability and the problematic Southern Federal District.
v Migration. The expected replacement of “cheap” labor of migrants by “expensive” labor of Russians will reduce the overall demand for labor and total number work places. Often the labor of low-skilled migrants is an addition to the skilled labor of Russians.
v Remaining barriers to the creation and expansion of new enterprises, high corruption in the center and localities, infatuation with state-owned monopolist companies to the detriment of private producers' competition, inefficiency of the judicial system, appreciation of the ruble and the growth of the effective exchange rate, tightening and arbitrariness in the field of tax administration, attempts solve the problem of low wages by administrative methods.
Property relations are a kind of arena in which the action of factors unfolds, filling the functioning of the labor market mechanism with real content, forming various specific situational options for the demand for labor and its supply and, therefore, having a decisive impact on the scale, level, forms, structure and unemployment dynamics.
The problem of the level of employment of the able-bodied population of the country and, consequently, the level of unemployment arises and exists in inseparable connection co demand for labor entering the labor market. Therefore, the analysis of the problem presupposes the clarification of the content of this concept.
Demand for labor (labor) can be defined as the number of workers that an employer is willing to hire in a given period for a certain wage rate. It should be noted that the demand for labor as a factor of production is a derived demand.
The employer needs workers not by themselves, but to produce certain goods and services. The demand for labor is determined by a number of factors: the volume of production and its industry structure, the degree of labor intensity of production (the nature of the technologies used), the cost of labor, etc.
Quantitatively, the demand for labor reflects the volume and structure of the needs for employees from enterprises and organizations different forms property, acting as subjects of the market economy, in order to fill vacancies (both vacant and newly created) at given production volumes and labor productivity levels.
As already noted, the demand is made up of the number of vacancies and positions of workers for whom the employer is looking for work. When studying the demand for labor, various indicators and characteristics of demand can be used. General demand characterized by the general availability and structure of jobs in a given country, effective demand- the number and structure of those employed in the economy (the difference between total demand and overemployment).
Satisfied demand is realized demand. Unsatisfied demand characterized by data on the presence, movement and structure of vacancies and vacancies in various signs(by sectors and sectors of the economy, professions and required qualifications, duration of employment offered, level of wages offered, etc.).
The value of satisfied and unsatisfied demand is set on the basis of a fixed (and, therefore, precisely known) number of employees hired during a given period, on the one hand, and remaining jobs, on the other.
Under potential demand demand is understood taking into account the possible prospects for the development of enterprises and organizations.
The structure of demand for labor is determined by specific types labor activity which are carried out in organizations in accordance with the profile and specialization. In the modern period, the structure of demand is extremely complex, because within the framework of social production there are tens of thousands of specific types of labor, and their totality is in constant motion, constant change and renewal.
On a broader scale, from the point of view of the professional and qualification level of the hired labor force, the demand structure is divided into the following main groups:
a) the demand for highly skilled labor;
b) demand for labor force of average qualification;
c) demand for low-skilled labor force;
d) the demand for unskilled labor.
In conditions of intensive development scientific and technological progress the demand for skilled and highly skilled labor prevails, and in conditions of a low technical and technological level of production, the demand for medium and low-skill labor, and often for unskilled manual labor, prevails.
They argue that, other things, the direct elasticity of demand for a particular type of labor with respect to wages is the higher, the more:
1) higher price elasticity of demand for the product produced by the firm;
2) easier to replace this species labor by other factors of production;
3) higher elasticity of supply of other factors of production;
4) a large share of the costs of this type of labor is in the total production costs.
First law- the law of elasticity of demand for the price of the product produced by the firm. This law is connected with the nature of the demand for labor as a demand for production, and, consequently, with the fact that, other things being equal, the amount of labor employed depends on the volume of the product demanded in the product market. This law in more refers to economies of scale rather than substitution effects. Wage cuts lower costs and prices and increase demand for the product. The more elastic the demand for a product, ceteris paribus, the greater will be the additional product consumed by the market for any given reduction in the price of the product. Under these circumstances, there is greater economies of scale and therefore more significant growth labor demand. The elasticity of demand for a firm's labor will be higher than for the industry as a whole, and higher in the long run than in the short run.
Second Law- the law of substitution of labor by other factors of production. It can be expected that the elasticity of demand for labor will be higher in the long run than in the short run, because technical capabilities factor substitutions are more favorable in the long run. The long run is defined as the period over which capital can change. This is a precondition for the replacement of labor by capital.
third law- the law of elasticity of supply of other factors of production. If the two factors are denominators, then an increase in the wage rate generates the substitution of capital for labor, other things being equal. Assume that economies of scale that reduce output are negligible and that substitution effects reduce the demand for labor. If the supply of capital in an industry is highly elastic, then there is a substitution effect. If, on the contrary, the supply of capital is inelastic, the same substitution effect is expressed in that changes in the slope of the isocost will not be so sharp. Similar arguments apply when production expands. Any substitution of labor for capital caused by a fall in wages will be counteracted by the expansion of production.
Fourth Law- the law of the share of labor costs in total production costs. This law is not absolute, it requires one clarification regarding the elasticity of substitution of factors of production. In the above formulation, this law is satisfied if the elasticity of substitution of factors of production is less than the elasticity of demand for the product. If the elasticity of substitution of factors of production is greater than the elasticity of demand for the product, then the situation is reversed: the higher the share of labor costs in total costs, the lower the elasticity of demand for labor.
MODIFIED MODELS OF LABOR DEMAND
Market Demand Curves
Demand curves for individual firms show how much labor each firm can attract at a given level of real wages. Market Demand Curve- is nothing but total the demand for labor from all firms in a particular labor market at any certain real wage level. If there are three firms in this labor market, and if, at a given level of real wages, firm A can hire 12 workers, firm B 6 workers, and firm C 20 workers, then the market demand is 38 workers. More importantly, since market demand curves are directly derived from firm demand, they pointing down as a function of real wages. If real wages fall, firms will be able to attract more workers. In addition, lower wages make it easier for the firm to enter the market. Conversely, when wages rise, firms are forced to hire fewer workers, and some of them will close altogether.
So far, we have assumed that firms take product prices for granted. If the firm is dealing with a downward-sloping demand curve for its products, i.e., as the number of employees and products increase, the price of the latter decreases, then marginal revenue ( MR), received from the sale of the last unit produced will not be equal to its price (R). The marginal revenue will be less than the price of the product because the reduced price was applied to the sale of all units produced, not just the last one. Because of this, the above equations and not determine the demand for labor if there is a monopoly in the market.
A profit-maximizing monopoly operating in a competitive market labor, will hire new workers as long as the marginal money product (MRP ) does not compare with wages
MRP = (MR) (MP L)= W
We can now express the short-run demand for labor in terms of real wages by dividing the equation by the price of the firm's product, resulting in:
(MR/R) (MP L) = W / R
Since marginal revenue is always less than the price of the monopoly product, the ratio (MR/R) in the equation is less than one. Therefore, ceteris paribus, the labor demand curve for a firm that is a monopolist in the market of its products will pass below and to the left of the labor demand curve characterizing the same firm but not a monopoly. In other words, other things being equal, output under monopoly production will be lower than under competition, and the same applies to the level of employment.
However, the level salaries, paid by the monopolist need not be different from the wages that exist in a competitive market, although the level employment below. The monopoly producer of any product can occupy only a small sector of the labor market according to certain type workers, and therefore he has to accept prevailing labor market prices, despite the fact that in the market of goods it dictates prices for your products. Thus, a local monopoly may dominate the market for a product, but when it has to hire, for example, a secretary, it will have to do this in competition with other firms, setting him a generally accepted wage.
There are, however, circumstances under which, economists believe, a monopoly firm may pay higher wages than firms operating in competition with each other. Monopolies, and in the US, some of them are legal. should be subject to government regulation aimed at preventing excess profits. This regulation of profits may be thought to encourage the monopolies to charge higher wages than they would if they were full monopolists. There are two reasons to explain this.
First, the state allows the monopolies to pass the costs on to the buyers of the product. Therefore, the leaders of monopolies, although they cannot maximize profits, achieve exceptional position in the labor market by charging high wages and passing the costs on to consumers in the form of more high prices. Being able to pay higher salaries to your employees makes life easier for the manager, allowing him to hire more attractive people or select workers with the required characteristics in the labor market.
Second: monopolies not yet covered government regulation, might not want to draw too much attention to themselves due to their too high profits. This may serve as an incentive for them to pay high wages, which are partly intended to hide profits. In other words, the excess profits of the monopolies partly take the form of highly paid labor for certain categories of workers, and do not take the form of ordinary cash income.
Be that as it may, data on monopoly wages are scarce and ambiguous. Some researchers have concluded that firms in industries with few competitors really pay their equally skilled workers more than competitive firms. However, other studies of regulated monopolies have produced mixed data on wages for equal-skilled workers in them and in competitive firms.
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Modified Models demand for labor from the firm
from "Human Resource Management"
Until now, the starting point of our reasoning has been the position that the company produces products at the prices that form a competitive market, and production volumes do not affect sales prices. But if the firm occupies a monopoly position in the product market and satisfies most demand for it, then it deals with the demand curve for its products, which slopes down, which characterizes the decrease in price as volumes increase. In this case, it turns out that the marginal revenue received from the sale of each subsequent unit of output will decrease. This is due to the fact that the increase in sales is associated with the need to reduce the price of all manufactured products, and not just the last one. Because of this, the demand for the labor of a monopoly firm in the product market is not determined by the formula MR = W.Such a firm will hire new workers until the marginal money product equals salary(the labor market is competitive and wage rates are a given for the firm). And since the increase in output and the number of workers employed lead to a decrease in the marginal money product, the monopoly firm will limit its production and hiring of workers compared to a firm operating in a competitive market. Therefore, ceteris paribus, the labor demand curve for it will pass below and to the left of a competitive firm.
So far, we have been talking about a situation where an employer enters a competitive labor market, where wage rates are a given for him. But if a company or a firm is the only buyer of labor of a given skill or in a given region, then what is the relationship between hiring and wages? are forced to deal with a supply curve that is directed upwards, namely the market supply curve, where each additionally entering into labor Relations the worker is worth more. To increase production, a monopsony company must increase wages, in contrast to a competitive company, which can increase production at a stable level of wages.
When we talk about the long run, we mean that there are changes in the composition of permanent capital. Employers at their discretion change the capital and the number of hired workers. The increase in wages is related to the number of employed workers in accordance with two factors. The first is the scale effect. It consists in the fact that a firm seeking to maximize profits will increase the volume of production and the number of employees until the marginal revenue from the last unit produced is equal to the marginal cost of production. Under these conditions, an increase in wages entails an increase in costs without affecting marginal revenue. As a result, at the previous equilibrium level of output marginal cost begin to exceed marginal revenue. The firm suffers a loss from the output of the last unit of output, and it can increase income after a wage increase only by reducing production, that is, reducing the capital and labor used.
The second factor is the substitution effect. The firm's desire to minimize production costs is achieved when an additional unit of output produced by an additional unit of labor (with capital unchanged) costs the same as if it were produced by increasing capital. So. the firm wants to maintain a constant level of production, but would like to change the ratio of capital and labor in the hope of reducing costs. If the marginal cost of increasing production by one unit using only additional labor is $13, and increasing capital is $10, then the corresponding reduction in labor and increase in capital maintains the same level of production and reduces costs by $3. The replacement of labor by capital will occur as long as the cost of producing an additional unit of output, due to hiring an additional unit of labor, exceeds the cost of producing an additional unit of output, associated with an increase in capital.
This equation shows that in order to ensure a minimum of production costs, a firm must increase capital and labor until their relative marginal costs equal their relative marginal productivity.
Consider the labor market for unskilled workers, assuming that all of them will be covered by the guaranteed minimum law.
On fig. 8.4 shows the unskilled labor market, which is in a state of equilibrium before the introduction of a legally established minimum wage. The employment rate is Eo and the real wage is Wo/Po. What happens after the introduction of new rates that are higher than the original wage This will cause real wages to rise to the level of Wl / Po, but the number of employees hired by the firm will have to be reduced to E1. However, the number of those wishing to work for the new wages has increased to E2, which increases the number of unemployed to the value (E2 - E1).
To what extent such a situation contributes to the achievement of an acceptable standard of living for workers. Everything depends on the specific size of this minimum, how much it is able to compensate for losses from possible unemployment, how the unemployment insurance system allows you to exist during the period of looking for a new job.
Demand for labor is defined as the amount of labor an employer is willing to use in a given period of time for a given wage rate.
As a factor of production, the demand for labor is a derived demand, since the decision on the volume of labor used depends on the decision on the volume of production of material goods and services.
A simple labor demand model is based on the following assumptions:
The objective function of the firm is profit maximization.
The firm's behavior is described by a production function of a two-factor type (factors are labor and capital).
The firm operates in a competitive goods market and the labor market.
The firm's labor costs consist only of employees' wages.
The volume of hired labor depending on wages is determined through the marginal product of labor, while the demand curve for labor in the short run is equal to the curve of the marginal product of labor. The demand function for labor is decreasing.
In the long run The variables are both labor and capital. The decision of the commodity producer (employer) on the amount of factors used depends on the relative prices of the factors of production and the technology used.
The basic law of variable proportions for the choice of two factors of production states that the factors will be used so that the relative amounts of production added by an additional unit of each factor are proportional to their relative values.
At constant prices for factors of production (w, r), the increase in total costs is graphically expressed in parallel shifts up and to the right of the isocost lines. Each of these isocosts will be tangent to only one isoquant. The touch points of isocosts and isoquants show the maximum output at a given level of input, or the minimum input required for a given output.
The line connecting all points of contact of isocosts and isoquants shows how the number of factors of production used will change with a change in the level of output of the firm. This curve is called "the way of development of the company".
Demand for labor industry and market. If firms compete in the same labor market and different commodity markets, the total demand for labor is equal to the sum labor demand of individual firms. If firms compete in the same market of labor and goods, i.e., they form an industry, then the demand of such an industry for labor is not equal to the sum of the labor demand of its individual firms.
The simple model of demand for labor assumes the existence of two factors - capital and labor. However, labor cannot be considered as homogeneous - workers differ in professions, qualifications, gender, age. An extension of the labor demand model assumes the presence of at least two types of labor - skilled and unskilled. They can act as complements and substitutes in the production of goods (as types of resources), as well as be full complements and substitutes in the formation of demand for labor.
The labor of full-time and part-time workers can also be considered as two different types of labor used by the firm. The choice of a particular combination of these workers depends on the relative costs of their labor and their relative productivity.
Scale and substitution effects in the demand for labor. scale effect called the change in the volume of hired labor in response to a change in the volume of output caused by a change in the prices of factors of production and, accordingly, the value of production costs.
substitution effect called the change in the amount of labor hired in response to a change in the ratio of volumes of used factors of production, caused by changes in prices for factors of production.
When the wage rate changes, the effects of scale and substitution in relation to the demand for labor act in the same direction, while when the price of capital changes, they act in different directions.
When the wage rate increases, the effects of scale and substitution will reduce the demand for labor.
Two types of labor as factors of production can be substitutes for each other if more use of one of them leads to less use of the other in the production of a given volume of output. Whether these factors of production (kinds of labor) are full substitutes or complements depends on the ratio of the absolute values of substitution and scale effects.
Unskilled labor and capital are, as a rule, supplements in production. They are used together and when the price of one of these factors changes. The firm changes demand for both of these factors in the same direction. However, if the price of capital rises, the firm can reduce the demand for skilled labor and capital and compensate for this reduction by increasing the demand for unskilled labor.
Elasticity of demand for labor and the laws of derived demand. Direct elasticity of demand for labor with respect to wages is defined as a relative (percentage) change in the employment of a certain type of labor L i , caused by a single relative (one percent) change in the wages of this type of labor w i .
The change in the elasticity of demand for labor is determined by the four Marshall-Hicks laws of derivative demand. They argue that, other things being equal, the direct elasticity of demand for a certain type of labor with respect to wages is the higher:
higher elasticity of demand for the price of the product produced by the firm;
it is easier to replace this type of labor with other factors of production;
higher elasticity of supply of other factors of production;
a large share of the cost of this type of labor is in the total cost of production.