Introduction

Demand for labour is a derived demand. Labour is not needed for his own sake but for the goods and services he can produce. Secondly, the demand for labour is an ‘anticipated demand’. Labour demand is based on anticipated future demand for goods and services.

 

Definition



It is total number of people or members of a labour force that entrepreneurs (firms or employers) wish to employ in a country in a given period.

 

Factors influencing demand for labour

  1. Number of Industries: The higher the number of industries in a state, the higher the level of demand for labour, and vice versa.
  2. Level of wages: The lower the level of wages, the higher the level of demand for labour, and vice versa.
  3. Market Size – level of demand for goods and services: The larger the market size or higher the level of demand for goods and services like period of economic boom in a large country, the higher the level of demand for labour, and vice versa.
  4. Availability of capital: The higher the amount of capital readily available for use or establishment of new industries and expansion of old ones in a state, the higher the level of demand for labour.
  5. Availability of other factors of production: The higher the amount of other factors of production e.g. large parcel of land, machines and many entrepreneurs, the higher the level of demand for labour.
  6. Labour Productivity or Efficiency: It is output per labour hour. The higher the output of labour per hour or higher the level of efficiency and effectiveness of labour in industries, the lower the level of demand for labour, and vice versa.
  7. Nature of industries – method of production (labour or capital intensive): The adoption of labour – intensive techniques (method) of production in a factory, the larger the number of people that would be employed. While adoption of capital intensive technique reduces demand for labour.
  8. Government policies: Government policies of high minimum wage rate, mechanized system of production, free importation, high tax rate, etc reduces demand for labour, and vice versa.
  9. Nature of the economy – boom or slump: The higher the level of economic activities, like period of boom (inflation) or festival period (Christmas), the larger the demand for labour. And the lower the level of economic activities, like the period of slump (deflation), the less the demand for labour.
  10. Level of employment attained: If the economy (country) has attained maximum or full level of employment, the demand of labour will be less. But if it has not attained full employment level, demand for labour will be higher.
  11. Expectation of favourable economic conditions: We recall that demand for labour is an ‘anticipated demand’. If there is a bright prospect for business activities in the near future, the demand for labour will rise, and vice verse.
  12. Level of capacity utilization – production output: The higher the level of output of goods and services in a country, the higher the demand for labour, and vice versa.

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