Factors that determine the demand for labour
There are various factors which influence the demand for labour. These factors in brief are as under:-
- Demand for the product: The demand for labour is derived from the 'demand for the commodities and services it helps to produce. If the demand for a product is high in the market, the demand for labour producing that particular type of product will also be high. Incase, the demand for a commodity is small, the demand for that labour will also be low.
- The level of wages: lf the wage level is high the employers will prefer to substitute capital for labour but if the wage level is low, labour will be cheaper relative to capital and the demand for labour will be high.
- The productivity of labour- This is the most important factor influencing demand for labour. The demand for labour depends upon its marginal revenue productivity. If workers are more productive employers will be prepared to employ more people.
- Proportion of labour cost to total cost:-If the wages of worker account for only a small proportion to total cost of a product, then the demand for labour will tend to be inelastic. In a capital intensive industry, for instance, a slight increase in the workers' wages will have little effect on the unit cost of product. So, the rise in wages will not reduce the demand for labour.
- The ease of substitution of labour for other factors:-If the substitution is costly, demand for labour will be more. If the substitutes of labour producing a particular product are easily available in the market, the demand for labour will then be elastic and vice Versa .
- The level of skills:-If the labour is highly skilled, the demand will be high and vice versa.
- The price of the product changes: - The price of a product increases, employers are prepared to hire more workers and vice versa.
- Time period: - In a longer time period; firms can vary the amount of capital and substitute labour for other cheaper factors of production.
- Nature of technology in use:-I,; a country, using labour intensive technology, demand for labour will be more while in a country using capital intensive technology, demand for labour wilt be less.
- Economic development:-Industrialization and ,agricultural development in the country will lead to more , investment in various field leading to more demand for labour.
- Elasticity of demand for the product- If the demand for a particular product is inelastic, the demand for the type of labour that produces this product will also be inelastic. The demand for labour will be elastic, if cheaper substitutes of the product are available in the market or the demand for the commodity it produces is elastic.