Demand for Labour (Labour Markets)

The labour market is a factor market – it provides a means by which employers find the labour they need, whilst millions of individuals offer their labour services in different jobs.

The demand for labour is a derived demand, meaning that it depends on the demand for the goods and services that labour produces. The following are some of the factors that influence the demand for labour:

• The price of the good or service: The higher the price of the good or service, the more profitable it is for firms to produce it, and the more labour they will demand.
• Productivity of labour: The more productive workers are, the more output they can produce per hour, and the more labour firms will demand.
• The cost of labour: The higher the cost of labour, the less profitable it is for firms to hire workers, and the less labour they will demand.
• The cost and availability of substitutes: If there are good substitutes for labour, such as capital or automation, firms will be less likely to demand labour.
• The level of technology: The higher the level of technology, the more productive workers can be, and the more labour firms will demand.
• The level of government regulation: The more regulations there are on businesses, the more costly it is for them to operate, and the less labour they will demand.
• The level of economic activity: The higher the level of economic activity, the more goods and services are being produced, and the more labour firms will demand.

The demand for labour is a complex issue, and the factors that influence it can vary depending on the specific industry or sector.

Elasticity of Labour Demand - Revision Video