ABSTRACT
The focus of this chapter is on the degree to which employment responds to changes in wages. The responsiveness of labor demand to a change in wage rates is normally measured as elasticity, which in the case of labor demand is the percentage change in employment brought about by a 1 percent change in wages. The factors that influence own-wage elasticity can be summarized by the Hicks–Marshall's four laws of derived demand, named after two distinguished British economists, John Hicks and Alfred Marshall, who are closely associated with their development. Estimating at least the sign of cross-wage labor demand elasticities is useful for answering many public-policy questions. Greater labor demand elasticity increases the amount of job loss associated with collectively bargained wage increases of any given magnitude, thus reducing the power of unions to secure wage increases without much job loss.
