THE DEMAND FOR LABOUR1. Output factors 2. The productivity of labour3. Input factors

2. THE 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. THE 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. THE 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

INPUT 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 labourThus, in determining the ratio of labour to

capital, firms will measure the full cost of labour against the full cot of capital investment

THE COST OF LABOUR V. THE 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 rates2. 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

LABOUR DEMAND AND OVERSEAS MARKETS

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

YEAR 11, COMPLETE THE FOLLOWING TABLE:

FACTORS INFLUENCING LABOUR DEMAND

Output factors Input factors