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The Demand for Labor

The Demand for Labor. Hewi-Lin Chuang, Ph.D. 2010/03/11. 線上市調：旅遊餐飲業務人才， 被認為是未來具發展潛力的熱門職缺. ( 中央社消費情報 20100315 09:39:31) 在就業市場競爭激烈的環境，不少求職者都會面臨到職缺僧多粥少，所以培養 自我的能力 和 了解企業的人力需求 成為一門重要的學問。 根據 波仕特線上市調網 與 台北人力銀行 進行網路民調 調查對象 ﹕ 波仕特線上市調網 15~65 歲會員 有效樣本 ﹕ 3,008 份 調查期間 ﹕ 2010/02/25~2010/03/01

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The Demand for Labor

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  1. The Demand for Labor Hewi-Lin Chuang, Ph.D. 2010/03/11

  2. 線上市調：旅遊餐飲業務人才，被認為是未來具發展潛力的熱門職缺線上市調：旅遊餐飲業務人才，被認為是未來具發展潛力的熱門職缺 (中央社消費情報20100315 09:39:31) 在就業市場競爭激烈的環境，不少求職者都會面臨到職缺僧多粥少，所以培養自我的能力和了解企業的人力需求成為一門重要的學問。 根據波仕特線上市調網與台北人力銀行進行網路民調 調查對象﹕波仕特線上市調網15~65歲會員 有效樣本﹕3,008份 調查期間﹕2010/02/25~2010/03/01 調查方式﹕針對會員進行抽樣調查； 發送email邀請會員填寫波仕特所發佈的問卷。

  3. 線上市調：旅遊餐飲業務人才，被認為是未來具發展潛力的熱門職缺線上市調：旅遊餐飲業務人才，被認為是未來具發展潛力的熱門職缺 「您認為未來最具發展潛力與熱門的職務為何？」 第一名為「旅遊餐飲」占33.88% 現代人生活繁忙，閒暇之餘變得越來 越重視休閒品質，景氣好的時期，多 數人花在旅遊餐飲上不手軟，旅遊餐 飲消費市場廣大，此職務成為熱門搶 手職缺。 第二名為「美容娛樂」占19.61% 愛美不僅是女性天性，連男性也開始注意自己臉上的面子，然而因美容市場擴張迅速，薪水靠業績成長而優渥，職務也相對具有潛力。 第三名為「工程研發」14.59% 研發是企業的產品開發主力擁有專業技術性質，有經驗的人才取代性小，此職缺一直被認為最具發展潛力。

  4. 線上市調：旅遊餐飲業務人才，被認為是未來具發展潛力的熱門職缺線上市調：旅遊餐飲業務人才，被認為是未來具發展潛力的熱門職缺 若從職場關鍵能力分析，「請問您認為下列哪一項職場關鍵能力最能獲得企業的青睞？」 第一名是「抗壓力強」占25.33% 雇主最怕碰上抗壓性低的員工，遭遇 問題就離職，抗壓性強代表人格特質 穩定，遇到困難有處理事情能力，進 而能替公司創造績效。 第二名是「對工作的熱情態度」占18.85% 工作態度懶散，勢必會影響他人工作氣氛，所以抱持著熱誠的工作態度，積極的完成任務，最受企業青睞。 資料來源﹕ http://www.cna.com.tw/postwrite/cvpread.aspx?ID=53310

  5. 事業單位預計：99年4月底人力需求較1月底淨增加58.3千人事業單位預計：99年4月底人力需求較1月底淨增加58.3千人 • 行政院勞工委員會於99年1月11～27日間針對員工規模30人以上之事業單位辦理「99年第一次人力需求調查」，蒐集事業單位99年4月底預計較1月底之人力需求變動情況，計回收有效樣本3,020家，調查重要統計結果如下： • 勞動市場需求持續回升，事業單位預計4月底人力需求較1月底淨增加僱用58.3千人。 • 增加僱用人力之原因以「需求市場擴大」、「設備或部門擴充」及「聘用新人計畫」為主。 • 減少僱用人力之原因以「精簡人力」、「業務緊縮」及「產業淡季」為多。 • 按行業別觀察，以製造業、批發及零售業、支援服務業分別淨增加32.9千人、8.4千人、4.7千人最多。 • 按職類別觀察，以非技術工及體力工淨增加18.5千人最多。 資料來源：http://www.cla.gov.tw/cgi-bin/Message/MM_msg_control?mode=viewnews&ts=4b8e0cd4:7c1a&theme

  6. THE DEMAND FOR LABOR • The demand for labor is a derived demand. Employer’s demand for labor is a function of the characteristics of demand in the product market. It is also a function of the characteristics of the production process.

  7. Introduction • Firms hire workers because consumers want to purchase a variety of goods and services. • Demand for workers is derived from the wants and desires of consumers. • Central questions: how many workers are hired and what are they paid?

  8. Two important features of the demand for labor: • It can be shown theoretically and empirically that labor demand curves slope downward. • The quantity of labor demanded has varying degrees of responsiveness to changes in the wage.

  9. When the demand for labor is analyzed, two sets of distinctions are made: • Demand by firm v.s. the demand curves for an entire market. Note: Firm and market labor demand curves have different properties although both slope downward. • The time period for which the demand curve is drawn. Short Run: A period over which a firm’s capital stock is fixed. Long Run: A period over which a firm is free to vary all factors of production.

  10. A Simple Model of Labor Demand Assumptions: (1) Employers seek to maximize profit. (2) Firms employ two homogeneous factors of production, employee-hours (E) and capital (K), in their production of goods and services. Their production function can be written as: Q = f (E, K) (3) Hourly wage cost is the only cost of labor. Note: We ignore hiring, training cost and fringe- benefit costs for the time being. (4) Both a firm’s labor market and its product market are competitive.

  11. The Firm’s Production Function • Describes the technology that the firm uses to produce goods and services. • The firm’s output can be produced by a variety of capital–labor combinations. • The marginal product of labor is the change in output resulting from hiring an additional worker, holding constant the quantities of other inputs. • The marginal product of capital is the change in output resulting from hiring one additional unit of capital, holding constant the quantities of other inputs.

  12. 1. Short-Run Demand for Labor by Firms Defn. Marginal Product of Labor: The change in output resulting from hiring an additional worker, holding constant the quantities of all other input. Output Output 140 Average Product 25 120 20 100 15 80 60 10 40 Marginal Product 5 20 0 2 4 6 8 10 2 4 6 8 10 0 Number of workers Number of workers The Total Product, the Marginal Product, and the Average Product Curves

  13. Defn. Law of Diminishing Returns: Eventually each additional increment of labor produces progressively smaller increments of output. Defn. Value of the Marginal Product (VMP): The dollar values of the additional output produced by an additional worker. VMP = P ×MPE

  14. The profits are maximized by the competitive firm when the value of marginal product of labor is just equal to its marginal cost. Dollars 38 VAPE 22 VMPE 0 1 4 8 Number of Workers The Firm’s Hiring Decision in the Short Run

  15. Profit-Maximizing condition: Labor should be hired until its marginal product equals the real wage. i.e., MPE=W/P The firm’s demand for labor in the short run is equivalent to the downward-sloping segment of its marginal product of labor schedule. Note: The downward-sloping nature of the short-run labor demand curve is based on an assumption that MPE declines as employment is increased.

  16. Short Run Hiring Decision • Value of Marginal Product (VMP) is the marginal product of labor times the dollar value of the output. • VMP indicates the dollar benefit derived from hiring an additional worker, holding capital constant. • Value of Average Product is the dollar value of output per worker.

  17. 38 VAPE 22 VMPE Number of Workers 1 4 8 The Firm's Hiring Decision in the Short-Run A profit-maximizing firm hires workers up to the point where the wage rate equals the value of marginal product of labor. If the wage is $22, the firm hires eight workers.

  18. Elasticity of Labor Demand We measure the responsiveness of labor demand to changes in the wage rate by using an elasticity. The short-run elasticity of labor demand, δSR, is defined as the percentage change in short-run employment resulting from a 1 percent change in the wage: δSR = (%△ESR)／ (%△w) Since the labor demand curves slope downward, an increase in the wage rate will cause employment to decrease; the (own-wage) elasticity of demand is a negative number.

  19. Note: |δSR | > 1: a 1% increase in wage will lead to an employment decline of greater than 1% → elastic demand curve |δSR | < 1: a 1% increase in wage will lead to a proportionately smaller decline in employment → inelastic demand curve Elastic demand: aggregate earnings↓ when w↑ Inelastic demand: aggregate earnings↑ when w↑ W D2 D1 W’ D1: elastic demand D2: inelastic demand W E E1 E1’ E2’ E2

  20. 2. Market Demand Curve A market demand curve is just the summation of the labor demanded by all firms in a particular labor market at each level of the real wage. Note: When aggregating labor demand to the market level, product price can no longer be taken as given, and the aggregation is no longer a simple summation. However, the market demand curves drawn against money wages, like those drawn as functions of real wages, slope downward.

  21. 3. Long-Run Demand for Labor by Firms In the long run, employers are free to vary their capital stock as well as the number of workers they employ. • Profit Maximization’s Dual Problem – Cost Minimization Defn. Isoquant: An isoquant describes the possible combination of labor and capital which produce the same level of output. Defn.The Marginal Rate of Technical Substitution: The slope of an isoquant is the negative of the ratio of marginal products. The absolute value of the slope of an isoquant is called the marginal rate of technical substitution. Defn. Isocost: The isocost line gives the menu of different combinations of labor and capital which are equally costly.

  22. A profit-maximizing firm that is producing q0 units of output wants to produce these units at the lowest possible cost. →The firm chooses the combination of labor and capital where the isocost is tangent to the isoquant. i.e., MPE/MPK = w/r →Cost-minimization requires that the marginal rate of technical substitution equal the ratio of prices.

  23. Capital Note: To be minimizing cost, the cost of producing an extra unit of output by adding only labor must equal the cost of producing that extra unit by employing only additional capital. i.e., C1/r A C0/r P 175 B MPE/w = MPK/ r 0 100 Employment The Firm’s Optimal Combination of Inputs

  24. Cost Minimization • Profit maximization implies cost minimization. • The firm chooses the least-cost combination of capital and labor. • This least-cost choice is where the isocost line is tangent to the isoquant. • Marginal rate of substitution equals the ratio of input prices, w / r, at the least-cost choice.

  25. Long Run Demand for Labor • When the wage drops, two effects arise. • The firm takes advantage of the lower price of labor by expanding production (the scale effect). • The firm takes advantage of the wage change by rearranging its mix of inputs even if holding output constant (the substitution effect)

  26. The Effect of Change in w • Increase in w: • Substitution Effect • As w increase, labor cost rises, and more capital and less labor are used in the production process. • (2) Scale effect • The new-profit-maximizing level of production will be less. How much less cannot be determined unless we know something about the product demand curve.

  27. Both the substitution effect and the scale effect work in the same direction. So these effects lead us to assert that the long-run demand curve for labor slopes downward. Note: In general, if a firm is seeking to minimize costs, in the long run it should employ all inputs up until the point that the marginal cost of producing a unit of output is the same regardless of which input is used.

  28. Capital C0/r R P 75  q0 Wage is w1 Wage is w0 25 40 The Impact of a Wage ReductionHolding Costs Constant A wage reduction flattens the isocost curve. If the firm were to hold the initial cost outlay constant at C0 dollars, the isocost would rotate around C0 and the firm would move from point P to point R. A profit-maximizing firm, however, will not generally want to hold the cost outlay constant when the wage changes. q0

  29. Dollars Capital MC0 MC1 R p P 150 100 100 150 Employment Output 25 50 THE IMPACT OF A WAGE REDUCTION ON THE OUTPUT AND EMPLOYMENT OF A PROFIT-MAXIMIZING FIRM • A wage cut reduces the marginal cost of production and encourages the firm to expand (from producing 100 to 150 units). • The firm moves from point P to point R, increasing the number of workers hired from 25 to 50.

  30. Capital D C1/r Q C0/r R P 200 D 100 Wage is w1 Wage is w0 50 40 25 Employment Substitution and Scale Effects A wage cut generates substitution and scale effects. The scale effect (from P to Q) encourages the firm to expand, increasing the firm’s employment. The substitution effect (from Q to R) encourages the firm to use a more labor-intensive method of production, further increasing employment.

  31. Two Special Cases of Isoquants Capital and labor are perfect substitutes if the isoquant is linear (so that two workers can always be substituted for one machine). The two inputs are perfect complements if the isoquant is right-angled. The firm then gets the same output when it hires 5 machines and 20 workers as when it hires 5 machines and 25 workers.

  32. Elasticity of Substitution • The elasticity of substitution is the percentage change in the capital to labor ratio given a percentage change in the price ratio (wages to real interest). • Formula: %∆(K/L)  %∆(w/r). • Interpret a particular elasticity of substitution number as the percentage change in the capital–labor ratio given a 1% change in the relative price of labor to capital

  33. Elasticity of Substitution • Example: If the elasticity of substitution is 5, then a 10% increase in the ratio of wages to the price of capital would result in the firm increasing its capital-to-labor ratio by 50%.

  34. 4. Marshall’s Rules of Derived Demand (The Hicks-Marshall Law of Derived Demand) The factors that influence own-wage elasticity can be summarized by the four “Hicks-Marshall Laws of Derived Demand.” These laws assert that, other things equal, the own-wage elasticity of demand for a category of labor is high under the following conditions:

  35. When the price elasticity of demand for the product being produced high; • When other factors of production can be easily substituted for the category of labor; • When the supply of other factors of production is highly elastic; • When the cost of employing the category of labor is a large share of the total cost of production. Note: (1), (2) and (3) can be shown to always hold. There are conditions, however, under which the final law does not hold.

  36. (1) Demand for the Final Product The greater the price elasticity of demand for the final product, the larger will be the decline in output associated with a given increase in price and the greater the decrease in output, the greater the loss in employment (other things equal). Thus the greater the elasticity of demand for the product, the greater the elasticity of demand for labor will be.

  37. (2) SUBSTITUTABILITY OF OTHER FACTORS Other things equal, the easier it is to substitute other factors in production, the higher the wage elasticity of demand will be. Note: (1) Sometimes collectively bargained or legislated restrictions make the demand for labor less elastic by reducing substitutability (not technically). (2) Substitution possibility that are not feasible in the short run may well become feasible over longer periods of time, when employers are free to vary their capital stock. → The demand for labor is more elastic in the longer run than in the short run.

  38. (3) The supply of Other Factors As the wage rate increased and employers attempted to substitute other factors of production for labor, the prices of these inputs were bid up substantially. Such a price increase would dampen firm’s appetites for capital and thus limit the substitution of capital for labor. Note: Prices of other inputs are less likely to be bid up in the long run than in the short run. → Demand for labor will be more elastic in the long run.

  39. (4) The Share of Labor in Total Costs The greater the category’s share in total costs, the higher the wage elasticity of demand will tend to be. If the share of labor cost is large, cost increase due to wage increase is larger. The employer would have to increase their product prices by more, output and hence employment would fall more. Note: This law, relating a smaller labor share with a less-elastic demand curve, holds only when it is easier for customers to substitute among final products than it is for employers to substitute capital for labor.

  40. Factor Demands when thereare Several Inputs • There are many different inputs. • Skilled and unskilled labor • Old and young • Old and new machines • Cross-elasticity of factor demand. • %∆Di%∆wj • If cross-elasticity is positive, the two inputs are said to be substitutes in production.

  41. Price of input i Price of input i D0 D1 D0 D1 Employment of input i Employment of input i THE DEMAND CURVE FOR A FACTOR OF PRODUCTION IS AFFECTED BY THE PRICES OF OTHER INPUTS (a) (b) The labor demand curve for input i shifts when the price of another input changes. (a) If the price of a substitutable input rises, the demand curve for input i shifts up. (b) If the price of a complement rises, the demand curve for input i shifts down.

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