Elasticity of demand for labor, often referred to as labor demand elasticity or labor’s price elasticity of demand, measures the responsiveness of the quantity of labor demanded to changes in the wage rate. It helps us understand how sensitive employers are to wage rate changes and how employment levels adjust in response to wage fluctuations. Labor demand elasticity can be calculated using the following formula:
Elasticity of Labor Demand = 
The resulting elasticity value can be classified into three categories:
- Elastic Demand: If the elasticity of labor demand is greater than 1 (i.e., greater than 1 in absolute value), the demand for labor is considered elastic. In an elastic labor market, a small percentage change in the wage rate leads to a proportionally larger percentage change in the quantity of labor demanded. Employers are highly responsive to wage changes, and employment levels fluctuate significantly.
- Unitary Elastic Demand: If the elasticity of labor demand is exactly equal to 1, the demand for labor is said to be unitary elastic. In this case, a percentage change in the wage rate results in an equivalent percentage change in the quantity of labor demanded. The elasticity is neither elastic nor inelastic.
- Inelastic Demand: If the elasticity of labor demand is less than 1 (i.e., less than 1 in absolute value), the demand for labor is considered inelastic. In an inelastic labor market, a change in the wage rate leads to a proportionally smaller change in the quantity of labor demanded. Employers are less responsive to wage changes, and employment levels remain relatively stable.
