The amount of labor demanded by firms is generally assumed to be negatively related to the nominal wage; as wages increase, firms demand less labor. As with the supply of labor curve, this relationship is often depicted on a graph with wages represented on the vertical axis, and the quantity of labor demanded on the horizontal axis. The demand for labor curve is downward sloping, and is depicted as a line moving down and to the right on a graph.

A firm's cost is a function of the wage rate. As the wage rate rises, it becomes more expensive for firms to hire workers and so firms hire fewer workers.