Economic theory suggests workers will be added until the added value of the additional output no longer exceeds the wage. The value of the output produced by hiring an additional worker (the amount of the product times the price) is called the marginal revenue product. If the demand curve shifts, its elasticity changes and employers would need more or fewer workers. Unions are interested in reducing employers' abil ity to lay off employees in response to demand reductions and to create rules for how layoffs would be implemented if they were necessary.
In the short run, the marginal product of additional labor declines because the employer is using a fixed amount of capital. For example, a university contains a fixed number of classrooms. At some point, hiring additional faculty would not lead to more classes being taught because there would be no place to teach them. The declining marginal product of labor means labor demand is somewhat inelastic (downward-sloping), even though demand for the company's product might be very elastic. In concentrated industries, the demand for a firm's product is never completely elastic because each firm is a large proportion of the industry and each firm's products have some unique characteristics. Therefore, the labor demand is less elastic than it is in the competitive situation because marginal revenue at the point where market demand intersects the labor supply price would be less than the price of labor. Figure 8.2 gives examples of employment change comparisons in competitive and concentrated situations.
Economic theory suggests workers will be added until the added value of the additional output no longer exceeds the wage. The value of the output produced by hiring an additional worker (the amount of the product times the price) is called the marginal revenue product. If the demand curve shifts, its elasticity changes and employers would need more or fewer workers. Unions are interested in reducing employers' abil ity to lay off employees in response to demand reductions and to create rules for how layoffs would be implemented if they were necessary. In the short run, the marginal product of additional labor declines because the employer is using a fixed amount of capital. For example, a university contains a fixed number of classrooms. At some point, hiring additional faculty would not lead to more classes being taught because there would be no place to teach them. The declining marginal product of labor means labor demand is somewhat inelastic (downward-sloping), even though demand for the company's product might be very elastic. In concentrated industries, the demand for a firm's product is never completely elastic because each firm is a large proportion of the industry and each firm's products have some unique characteristics. Therefore, the labor demand is less elastic than it is in the competitive situation because marginal revenue at the point where market demand intersects the labor supply price would be less than the price of labor. Figure 8.2 gives examples of employment change comparisons in competitive and concentrated situations.
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