Analysis the changing nature of Elasticity Labor Demand in IT Industry w.r.t.
Elasticity of Product Demand`The important question is how responsive is thedemand for labor in IT Industry?The responsiveness of labor demand to a changein wage rates is normally measured as an“elasticity”In IT industry elasticity of product demandchanges in two ways, Greater the price elasticity of demand for ITproduct, greater the elasticity of labour demand.
Elasticity of Labor Demand For IT In ITe=(% L)/(% W) If e>1, then labor demand is elastic Wages($) If e<1, then labor14 Elastic demand is inelastic If e=1, then labor10 demand is unit- Midpoint elasticity=1 7 M elastic Inelastic4 20 35 50 70 Employees
In IT , When e>1Suppose wages goes up by 2% and as a result employment falls by 5%. EmploymentThen the elasticity of labor 5% demand is 2.5 which implies labor demand is ELASTIC since the percentage change in employment is greater 2% than the percentage Wages change in wages
When e<1 Suppose wages goes up by 5% and as a result employment falls by 2%. Employment Then the elasticity oflabor demand is 0.4 which implies labor demand is INELASTIC since the percentage change in Wages employment is less than the percentage change in wages
Supply elasticity of any input• In IT if we increase the supply of input like software infrastructure then supply elasticity also increases Due to decrease the price of software or infrastructure.• Greater the Supply elasticity leads to greater the elasticity of labor. Software Supply Infrastructure Elasticity
Share of Labor in Total Costs How critical is labor in the production process? If labor’s share in total costs is only 20% then a 10% increase in the wage rate will raise costs by 2%. But if the initial share is 80% then the same 10% increase in wages raises costs by 8%.Output with high share of labor will be affected more The greater the cost of labor in total costs, the higher the elasticity of demand.
Substitutability of other input In case of IT we can substitute skilled labor with better infrastructure, electricity, software etc. Software EmployeeGreater elasticity of substitutablity leads to greater labour demand
•An increase in the wage rate makes labor more expensive and induces employers to substitute other factors for labor. •An increase in wages caused production costs to rise causing reduced output and hence lower employment of labor Skilled Output Substitude Labor /ProductionEqualize the whole thing the IT firm substitude the skilled labour with other factorof output.+
Determinants of demand of labor in IT Industry Product Demand: Demand Demand for IT for Product Labor, who producing the product Changes in demand of IT product will sift the labour demand in the same direction
Productivity Greater the skilled & trained employee in IT leads lower the demand of labour Low demand of labour offset the high demand & it become the normal demand
No of employer MORE EMPLOYMENT OF IT PEOPLE LEADS TONO OF IT FIRMS
Skilled labor Demand for other Price input hiringIn case of IT demand of skilled labour is decreased due to increase in prices of hiring then the demand for other input increases
In IT industry it is very much applicable Price elasticity/ in such a way, if the prices of electricity or hardware hardware or software is increased then Laptop demand for p.c. or laptop get reduced.
In IT input are used in direct proportion. Greater the cost of labor and infrastructure give the greater the return .