Demand Elasticities for Educated Labor

Abstract

This chapter explains the demand elasticity's for educated labor. The elasticity of demand for educated labor measures the percentage change in the number of workers with specified levels of education demanded by employers per percentage change in the wage of these workers, other wages and input prices assumed fixed. When the elasticity of demand is relatively small enormous changes in wages are needed to induce employers to alter the number of workers hired. When the elasticity of demand is moderate, by contrast, the concept is a critical element in understanding the effect of economic changes on demand for labor and wages. When the elasticity of demand is near infinite, it is probably not useful to think of educated labor as a distinct input in production at all, as it is likely that other inputs are perfectly substitutable for it. The magnitude of the elasticity of demand for educated labor depends critically on the extent to which educated labor is substitutable for other inputs in production.