Intersection of demand and supply of labor

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The wage rate and employment are determined by the intersection of demand and supply of labor.

Two things that can change the demand for labor are, (1) the amount or price of a produced good (if the prices rise it leads to an increase in labor, and if the price falls it leads to a decrease in demand for labor). The demand for labor changes when the price of the good being produced changes because it directly affects the marginal revenue product of labor. (2) Changes in the productivity of labor (more productive workers will cause an increase in demand for labor, if workers are less productive it'll cause a decrease in demand for labor)

Changes in the supply of labor, two things to mention are (1) changes in wage rate within competing markets then the supply of labor will change. (If rival industries offer higher wages it will cause a decrease in the supply of labor and if they offer lower wages will lead to an increase in the supply of labor. (2) They are barriers to entering the market (permits, licenses, etc.) and population growth.

Reference no: EM133208475

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