Changes in the demand for labour

After you have worked through this section of the learning unit, you should be able to:

  • illustrate and explain the impact of a change in the demand for a good or service on the demand for labour
  • illustrate and explain the impact of a change in productivity of labour on the demand for labour

There are a number of factors other than the wage that will cause a change in the demand for labour. These non-wage factors are things such as:

  • the price of the product produced by labour
  • the productivity of labour
  • the cost of other inputs
  • the number of firms

Consider the following scenario:

The following data represents the data for a manufacturer of shoes:

Units of labour Total product (pairs of shoes)
(TP)		 Marginal product (pairs of shoes)
(MP)		 Price per pair of shoes

(R)

 Marginal revenue product
(MRP)
0 0 --- 70 ---
1 12 12 70 840
2 22 10 70 700
3 31 9 70 630
4 36 5 70 350
5 40 4 70 280
6 42 2 70 140

Demand for labour

If there is an increase in the demand for shoes in the shoe market, how will that influence the price of shoes?

Correct. When we dealt with the topic of demand, supply and prices, we have seen that an increase in the demand for a good or services increases the price of the good or services. We can therefore expect that an increase in the demand for shoes will increase the price of shoes.

Incorrect. When we dealt with the topic of demand, supply and prices, we have seen that an increase in the demand for a good or services increases the price of the good or services. We can therefore expect that an increase in the demand for shoes will increase the price of shoes.

Incorrect. When we dealt with the topic of demand, supply and prices, we have seen that an increase in the demand for a good or services increases the price of the good or services. We can therefore expect that an increase in the demand for shoes will increase the price of shoes.

Assume that the price of shoes increases to R80. How will that influence the data in the above table for our shoe manufacturer?

Incorrect. When we dealt with the topic of demand, supply and prices, we have seen that an increase in the demand for a good or services increases the price of the good or services. We can therefore expect that an increase in the demand for shoes will increase the price of shoes.

Incorrect. When we dealt with the topic of demand, supply and prices, we have seen that an increase in the demand for a good or services increases the price of the good or services. We can therefore expect that an increase in the demand for shoes will increase the price of shoes.

Correct. The total product and the marginal product are unchanged since there was no change in the productivity of the factors of production. However, the marginal revenue product is higher since the price of shoes has increased to R80. This is indicated in the following table:

Units of labour Total product (pairs of shoes) (TP) Marginal product (pairs of shoes) (MPP) Price per pair of shoes (R) Marginal revenue product (MRP)
0 0 --- 80 ---
1 12 12 80 960
2 22 10 80 800
3 31 9 80 720
4 36 5 80 400
5 40 4 80 320
6 42 2 80 160

In terms of our demand for labour curve at each wage, the demand for labour is higher and the demand for labour curve shifts to the right.

An increase in the productivity of labour increases the total product, the marginal product and the marginal revenue product. This is also indicated as a rightward shift of the demand for labour curve, which implies that the demand for labour increased.

Shift in the demand for labour

Activity

The following data represents the data for a manufacturer of shoes:

Units of labour Total product (pairs of shoes)
(TP)		 Marginal product (pairs of shoes)
(MP)		 Price per pair of shoes

(R)

 Marginal revenue product
(MRP)
0 0 --- 70 ---
1 12 12 70 840
2 22 10 70 700
3 31 9 70 630
4 36 5 70 350
5 40 4 70 280
6 42 2 70 140

Assume that the productivity of labour increases as follows:

Units of labour Total product (pairs of shoes)
(TP)		 Marginal product (pairs of shoes)
(MP)		 Price per pair of shoes

(R)

 Marginal revenue product
(MRP)
0 0 --- 70 ---
1 15 15 70
2 28 13 70
3 40 12 70
4 48 8 70
5 55 7 70
6 60 5 70

1. Complete the table.
2. Will the demand curve for labour shift to the left or the right?

Click to Show Answer

1.

Units of labour Total product (pairs of shoes)
(TP)		 Marginal product (pairs of shoes)
(MP)		 Price per pair of shoes

(R)

 Marginal revenue product
(MRP)
0 0 0 70 0
1 15 15 70 1 050
2 28 13 70 910
3 40 12 70 840
4 48 8 70 560
5 55 7 70 490
6 60 5 70 350

2. It increases and will therefore shift the demand curve for labour to the right.