Industries with a high fraction of expenditures attributable

Industries with a high fraction of expenditures attributable to employees will have more elastic labor demand curves than industries with a smaller fraction tied up in labor. Explain why this is true/false/ or uncertain?

Solution

True
Industries with a high fraction of expenditures attributable to employees would be more sensitive to changes in wages and any increase in wages would lead to reduction in employment than industries with smaller expenditures on labor. Smaller expenditure firms would have inelastic demand which makes them to be less sensitive to any increase in wages.