The labour market
The labour market
- A wage is the price of labour, so use demand and supply.
- The demand for labour is a derived demand — firms want workers to make goods that sell.
- It depends on the marginal revenue product (MRP) — the extra revenue one more worker brings. Hire while MRP ≥ the wage.
Practice
The demand for labour is a "derived demand" because firms want workers to:
Labour demand derives from the demand for the goods workers produce.
Practice
A firm should keep hiring workers while the marginal revenue product (MRP) is:
A worker is worth hiring while the extra revenue they bring (MRP) covers their wage.
Supply and equilibrium
- The supply of labour rises with the wage, and depends on training needed, conditions and available skills.
- In a competitive market, the wage settles where labour demand = labour supply.
Practice
In a competitive labour market, the wage settles where labour demand equals labour supply.
Like any market, the wage (price of labour) is set where demand meets supply.
You've got it
Key idea
- a wage is a price; labour demand is a derived demand
- it depends on the marginal revenue product (MRP) — hire while MRP ≥ wage
- the competitive wage = where labour demand meets supply