3.5.1 - demand for labour

Question 1

what is demand for labour

Answer 1

The demand curve for labour shows the ​quantity of labour that employers would wish to hire at each possible wage rate.

Question 2

what are the factors that affect the demand for labour

Answer 2

Demand for the product: ​Since labour is a derived demand, if there is no demand for the product, there is no demand for the labour. Firms won’t employ people if the goods they make aren’t going to be sold and make a profit. An increase in demand for the product leads to an increase in demand for labour. This is linked to the concept of MRP: an increase in output or price of a good will increase demand for the labour that produces that good.
● Prices of other factors of production: ​If machinery and equipment becomes cheap, people will switch machinery for labour and therefore the demand for labour will fall.
● Wages in other countries: ​If wages are lower in other countries and therefore wages in the UK are relatively high, people will be employed in other countries as it represents a lower cost for businesses. This means that demand in the UK is low.

Question 3

what is derived demand

Answer 3

Firms hire workers in order to produce goods to meet their aim, usually of making a profit. Therefore, the demand for labour is derived demand as it is derived from demand for the product the labour produces. Businesses only want the worker for as long as people are willing and able to buy the product they produce.