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Factors on which the demand for labor depends

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Factors determining the demand for labor; Factors on which the demand for labor depends

Demand for labour as a factor of production is a derived demand which is derived from demand for the product which labourers are going to produce. The following factors influence demand for labour:

  • Productivity :

    This is the most important factor influencing demand for labour. The demand for labour depends upon its marginal revenue productivity. An employer will go on employing more and more units of labour until the wage rate becomes equal to marginal revenue productivity.

  • Demand for the product :

    The higher the demand for the final product produced by labourers, the higher will be demand for labour.

  • Cost of substitution :

    If capital can be substituted for labour, demand for labour will be less. But it is very important to consider the cost of substitution that is whether the cost of productivity of capital and machinery is profitable one or not. If the substitution is costly, demand for labour will be more.

  • Technology :

    In a country, using labour intensive technology, demand for labour will be more while in a country using capital intensive technology, demand for labour will be less.

  • Economic development :

    Industrialization and agricultural development in the country will lead to more investment in various fields leading to more demand for labour.

  • Elasticity of demand for a product :

    If demand for a product is elastic, the demand for labour is producing that product will also be elastic.

These are the factors which determine the demand for labour.

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