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Chapter 4

Labor Demand Elasticities

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Relative Demand ElasticitiesFigure 4.1

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Different Elasticities along a Demand CurveFigure 4.2

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When is Elasticity High?

• Output elasticity is high - large scale effect

• Other inputs easily substituted

• Supply of other inputs is elastic

• Cost of labor is large share of total

• Firm demand is more elastic than industry

• Long run is more elastic

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Cross Wage Elasticity

• If elasticity >0, the goods are gross substitutes• if elasticity < o, they are gross complements• sub effect - bigger if there are more substitutes

- bigger if supply of subs is elastic• scale effect - bigger if k is a large share of total

- bigger if output market is elastic

k

jjk w

E

%

%

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Time Profile of the Minimum Wage Relative to Average Hourly Earnings

Figure 4.3

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Minimum Wage Effects: Growing Demand Obscures Job LossFigure 4.4