Economics of Human Resource

1. Represented by;
Sarwar Jahan Ansari
Srota Dharchoudhury
Soumava Das
Krishnendu Chatterjee

2. Analysis the changing nature of
Elasticity Labor Demand in IT
Industry w.r.t.

3. Elasticity of Product Demand`
The important question is how responsive is the
demand for labor in IT Industry?
The responsiveness of labor demand to a change
in wage rates is normally measured as an
“elasticity”
In IT industry elasticity of product demand
changes in two ways,
Greater the price elasticity of demand for IT
product, greater the elasticity of labour demand.

4. Elasticity of Labor Demand For IT
In ITe=(% L)/(% W)
If e>1, then labor
demand is elastic
Wages($) If e<1, then labor
14
Elastic demand is inelastic
If e=1, then labor
10
demand is unit-
Midpoint elasticity=1
7
M elastic
Inelastic
4
20 35 50 70
Employees

5. In IT , When e>1
Suppose wages goes up by
2% and as a result
employment falls by 5%. Employment
Then 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

6. When e<1
Suppose wages goes up
by 5% and as a result
employment falls by 2%. Employment
Then the elasticity of
labor 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

7. 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

8. 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.

9. Substitutability of other input
In case of IT we can substitute skilled labor
with better
infrastructure, electricity, software etc.
Software Employee
Greater elasticity of substitutablity leads to greater labour demand

10. •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 /Production
Equalize the whole thing the IT firm substitude the skilled labour with other factor
of output.+

11. 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

12. 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

13. No of employer
MORE
EMPLOYMENT
OF IT PEOPLE
LEADS TO
NO OF IT FIRMS

14. Skilled
labor
Demand
for other
Price input
hiring
In case of IT demand of skilled labour is decreased due
to increase in prices of hiring then the demand for
other input increases

15.  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.

16.  In IT input are used in direct proportion.
 Greater the cost of labor and infrastructure give the
greater the return .