Demand For Labour By the end of this unit you will be able to: Recognise the labour market as an example of a factor market Outline the determinants of the demand for labour

Demand for Labour Labour is a factor of production. The labour market is called a factor market. The Demand for Labour The demand for labour is a derived demand. It comes from the demand for the goods and services produced. Derived means ‘to come from’ The demand for a good or service is a final demand. The demand for ice cream workers comes from the demand for ice creams

Demand for Labour The producers are the buyers of labour – they demand labour to produce goods and services. The demand for labour shows the quantity of hours/workers/available jobs at any given wage rate ceteris paribus DL Demand for Labour w ($/hr) Q (hours) w1 q1 w2 q2 w = the wage rate. Wages are the price of labour or dollars paid per hour Q = the quantity of labour demanded by producers A decrease in the wage rate will result in a larger quantity of labour being demanded ceteris paribus. An increase in wages will result in a smaller quantity of labour being demanded ceteris paribus Real Wage Rate Quantity of workers

Changes in Demand for Labour 1. Change in demand for the good produced DL DL’ w Q hours Example: Decrease in the demand for hamburgers As fewer hamburgers are sold, fewer workers are required at each wage rate. The demand for labour will decrease. All factors that affect consumers demand for a good will affect the demand for labour Tastes and preferences Income Complements Substitutes

Changes in Demand for Labour 2. Changes in technology or productivity of labour DL’ w Q hours DL Example an increase in labour productivity When more efficient technology is introduced worker productivity increases so an employer will demand more workers at each wage rate. The demand for labour will increase.

Substitutes Example Substitutes are goods that can be used instead of another. E.g. Butter and margarine Pizza and hamburgers Example the price of margarine Falls The Market for Butter The demand for butter will fall as consumers will switch to consuming margarine as butter becomes relatively more expensive. Dairy farmers will need less workers, so the demand for dairy workers falls. D S P Q D’ Q’ P’ w Q hours DL DL’

Complements Example Complements are goods that can be used together with another good. e.g. MP3 player and online music If the price of a complement good falls then consumers will buy more of that good ( requiring more workers to make the goods) but it will also trigger a rise in the demand for the complementary good.