Why is the demand of labor a derived demand essay

Additionally, derived demand can be spurred by what is required to complete the production of a particular good, including the capital, land, labor, and raw materials required.

Why is the demand of labor a derived demand essay

Read this article to learn about Demand and Supply of Labour which are explained with diagrams! Although labour has certain peculiarities and cannot be regarded as a commodity, still wages are very largely determined by the interaction of the forces of demand and supply. The demand for labour is a derived demand.

It is derived from demand for the commodities it helps to produce. Hence an expected increase in the demand for a commodity will increase the demand for the type of labour that produces this commodity.

The elasticity of demand for labour depends, therefore, on the elasticity of demand for its output. Demand for labour will generally be inelastic if their wages form only a small proportion of the total wages.

The demand, on the other hand, will be elastic if the demand for the commodity it produces is elastic or if cheaper substitutes are available. The demand for labour also depends on the prices of the co-operating factors.

Suppose the machines are costly, as is the case in India, obviously more labour will be employed. The demand for labour will increase. Another factor that influences the demand for labour is the technical progress.

In some cases, labour and machinery are used in a definite ratio. For instance, the introduction of automatic looms reduces the demand for labour. After considering all relevant factors, e. Just as there is a demand price of commodities, so there is a demand price for labour.

The demand for labour, under typical circumstances of a modern community, comes from the employer who employs labour and other factors of production for making profits out of his business.

The demand price of labour, therefore, is the wage that an employer is willing to pay for that particular kind of labour. Suppose an entrepreneur employs workers one by one.

Why is the demand of labor a derived demand essay

After a point, the law of diminishing marginal returns will come into operation. Every additional worker employed will add to the total net production at a decreasing rate. The employer will naturally stop employing additional workers at the point at which the cost of employing a worker just equals the addition made by him to the value of the total net product.

Thus, the wages that he will pay to such a worker the marginal unit of labour will be equal to the value of this additional product or marginal productivity. But since all the workers may be assumed to be of the same grade, what is paid to the marginal worker will be paid to all the workers employed.

This is all about the demand side of labour. Now let us consider the supply side. By the supply of labour, we mean the various numbers of workers of a given type of labour which would offer themselves for employment at various wage rates. The supply of labour may be considered from two view-points?

For an industry, the supply of labour is elastic. Hence, if a given industry wants more labour, it can attract it from other industries by offering a higher wage. It can also work the existing labour force over-time.

This in effect will mean an increase in supply. The supply of labour for the industry is subject to the law of supply, i. Hence, the supply curve of labour for an industry rises upwards from left to right. The supply of labour for the entire economy depends on economic, social and political factors or institutional factors, e.Demand curve for labor A curve showing the different quantities of labor employers are willing to [hire] at [different] wage rates in a given time period, ceteris paribus.

It is equal to the marginal revenue product of labor. The concept of derived demand demonstrates how changing customer preferences or a changing economy affects business-to-business markets.

In fact, whether you own a manufacturing company or small. derived demand. the demand for labor is a derived demand. that is, it is derived from the demand for the product or service that the labor is helping produce. Demand for Labor. Derived Demand is a demand for a product or resource because of its contribution to the final product.

Workers with higher productivity tend to earn higher wages. Ex: Fast Food Chef vs. Lawyer. The lower the price of labor, the more workers businesses would demand.

by estimating the relative demand for skilled labor derived from a cost function, or mandated wage regressions using aggregate industry-level data. However, out-.

Why is the demand of labor a derived demand essay

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