The
following are the major determinants of demand for labour
(1) The demand for labour is a derived demand; i.e. the demand for a product will bring about the demand for labour who produce that product. When economic development takes place, there will be change in pattern of demand; i.e. From Basic needs to comforts and finally to luxuries
(1) The demand for labour is a derived demand; i.e. the demand for a product will bring about the demand for labour who produce that product. When economic development takes place, there will be change in pattern of demand; i.e. From Basic needs to comforts and finally to luxuries
(2)
The quantity of labour demanded depends
on the wage rate. [Cost of
capital] (A profit maximizing firm will employ a worker if the value of
output added by the worker [i.e. Marginal productivity of labour] is greater
than or equal to the cost of the worker or the wage rate)
(3)
The quantity of labour demand depends
upon technology. [Availability
of capital] (As
technology improves, the demand for certain types of labour will fall while
others rise). When wages rises employers replace labour with machines
[Labour intensive to capital intensive technology] in less developed countries,
population is more thus high labour supply and this excess supply of labour
will push the wage low, so they prefer labour intensive. At the same time
developed countries prefer to use capital intensive technology. The labour
has become too expensive. There have been too much trade union actions
results in strike. The supply of labour is less and the labour available
does not have the necessary skills/training/qualifications. The firm
wants to take advantage of new capital equipment or technology. The
capital equipment/machinery could increase the efficiency of production and
reduce the cost of production. Moreover the increased complexity of
product being made could cause difficulty in production with labour.
(4) The price
of other factors of production: Assume steel (capital) prices go up.
Bridge building firms could induce this increased cost on the consumers;
however this could cause the above point of reducing the quantity demanded and
hence affecting revenue. Therefore, the firms could employ fewer builders.
Labour intensive technology refers to a production process
where a larger portion of labour is used compared with the portion of capital
equipment used. Agriculture, construction, and coal-mining industries are
examples of labor intensive.
Capital intensive technology refers to a production process
where a larger portion of Capital equipment is used compared with the portion
of labour used. Automotive, petroleum, and steel
industry are
examples of capital intensive.
Back to Home Page Click here