Factors that determinants of demand for labour
- Derived demand for labour. The higher the derived demand for labour, the higher demand for labour and the lower the derived demand for labour, the lower the demand for labour.
- Demand for the products that labour produces.
- The degree of substitutability of labour. The higher the degree of substitutability of labour by other factors of production, the lower the demand for labour but the lower the degree of substitutability of labour, the higher the demand for labour.
- The nature of technology used. Use of capital intensive production techniques (where more units of capital are used as compared labour) reduces the demand for labour while the use of labour intensive production techniques (where more units of labour are used as compared to capital) increase the demand for labour.
- The price of labour (Wage rate). The higher the wage rate, the lower the demand for labour and the lower the wage rate, the higher the demand for labour.
- The marginal productivity of labour. Marginal productivity of labour refers to the additional output resulting from employing an extra unit of labour. The higher the marginal productivity of labour, the higher the demand for labour and the lower the marginal productivity of labour, the lower the demand for labour.
- The price of substitutes for labour. The higher the price of substitutes, the higher the demand for labour and the lower the price of substitutes, the lower the demand for labour.
- The degree of competition for labour among firms. The higher the degree of competition for labour by firms, the higher the demand for labour and the lower the degree of competition for labour, the lower the demand for labour.
- The government policy. The government policy of minimum wage legislation for workers reduces the demand for labour while the government policy of maximum wage legislation increase the demand for labour by the firms.
- The size of the production unit (firm). The bigger the size of the firm, the higher the demand for labour and the smaller the size, the lower the demand for labour keeping other factors constant.
- The proportion of cost of labour to the total cost of production. The smaller the cost, the higher the demand for labour and the higher the cost, the lower the demand for labour.
CATEGORIES Economics
TAGS Dr. Bbosa Science
