Elasticity of Demand for Labour:
The responsiveness of demand for labour to a change in the wage rate. In some occupations, this is very low. A new, higher wage rate may be negotiated and there will be little effect on the number of people hired by employers. The important determining factors are:
• whether there is a substitute for the type of labour in question. An increase in teachers’ pay is unlikely to lead to a fall in the quantity of teaching services demanded, because substitutes are not very realistic
• whether labour is a significant part of total costs. In a power station the bulk of the cost comes from the capital invested and the cost of fuel; labour is a very small part of the total, so a pay increase will make little difference to the demand for labour
• whether the demand for the product is price elastic. If demand is inelastic, the increase in wage costs can be passed on to the customer with little change in the quantity sold, so there will be little change in the quantity of labour demanded.