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Unlike demand for goods and services, demand for labor is derived demand ... the marginal revenue product for labor producing goods or services for which there is no effective demand is $0, so at the limit of effective demand for the product, the elasticity of demand for labor in that specific labor market becomes 0.

The result when labor supply intersects within the zone of nil or negligible wage-elasticity of demand for labor is a bargaining range scenario, where there is no technical determinant of position within the wage and relative bargaining power is expected to determine position within the range.

Not all labor markets will be within the bargaining range for the same overall labor market conditions and same minimum wage ... and of course, this does not apply to a full employment economy (and hence does not apply within the standard economic modeling, which assumes from the outset a long-run tendency to full employment), but the empirical results tend to suggest that observed gross elasticity is nil or negligible, so if the partial elasticity is negative, it is offset by a positive income effect.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Jan 10th, 2009 at 11:56:44 PM EST
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