IDEAS home Printed from https://ideas.repec.org/a/taf/jeduce/v40y2009i4p437-445.html
   My bibliography  Save this article

Revisiting Marshall's Third Law: Why Does Labor's Share Interact with the Elasticity of Substitution to Decrease the Elasticity of Labor Demand?

Author

Listed:
  • Saul D. Hoffman

Abstract

The third Marshall--Hicks--Allen rule of elasticity of derived demand purports to show that labor demand is less elastic when labor is a smaller share of total costs. As Hicks, Allen, and then Bronfenbrenner showed, this rule is not quite correct, and actually is complicated by an unexpected negative relationship involving labor's share of total costs and the elasticity of substitution. The standard intuitive explanation for the exception to the rule presented by Stigler and referenced in many textbooks describes a situation rather different than the one described in the rule. The author presents an example that illustrates the peculiar negative impact of labor's share operating via the elasticity of substitution and then explains why the unexpected relationship between labor's share of total cost, the elasticity of substitution, and the elasticity of labor demand holds.

Suggested Citation

  • Saul D. Hoffman, 2009. "Revisiting Marshall's Third Law: Why Does Labor's Share Interact with the Elasticity of Substitution to Decrease the Elasticity of Labor Demand?," The Journal of Economic Education, Taylor & Francis Journals, vol. 40(4), pages 437-445, October.
    • Handle: RePEc:taf:jeduce:v:40:y:2009:i:4:p:437-445
    DOI: 10.1080/00220480903238032
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00220480903238032
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00220480903238032?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Drucker, Lev & Mazirov, Katya & Neumark, David, 2021. "Who pays for and who benefits from minimum wage increases? Evidence from Israeli tax data on business owners and workers," Journal of Public Economics, Elsevier, vol. 199(C).

    More about this item

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:jeduce:v:40:y:2009:i:4:p:437-445. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/VECE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.