Edexcel Economics (A) A-level
Theme 3: Business Behaviour and
the
Labour Market
3.5 Labour Markets
Detailed Notes
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, 3.5.1 Demand for labour
The demand curve for labour shows the quantity of labour that employers would wish to
hire at each possible wage rate.
Derived demand:
Firms hire workers in order to produce goods to meet their aim, usually of making a profit.
Therefore, the demand for labour is derived demand as it is derived from demand for the
product the labour produces. Businesses only want the worker for as long as people are
willing and able to buy the product they produce.
Factors influencing demand for labour:
● Wage rates: A wage is the price of labour and so has the same influence on demand
for labour as price has on the demand for a product. As wage rates increase,
demand for labour contracts since the MRP of labour must be higher for it to be
worthwhile employing more people, so less people are employed.
● Demand for the product: Since labour is a derived demand, if there is no demand
for the product, there is no demand for the labour. Firms won’t employ people if the
goods they make aren’t going to be sold and make a profit. An increase in demand
for the product leads to an increase in demand for labour. This is linked to the
concept of MRP: an increase in output or price of a good will increase demand for the
labour that produces that good.
● Prices of other factors of production: If machinery and equipment becomes
cheap, people will switch machinery for labour and therefore the demand for labour
will fall.
● Wages in other countries: If wages are lower in other countries and therefore
wages in the UK are relatively high, people will be employed in other countries as it
represents a lower cost for businesses. This means that demand in the UK is low.
www.pmt.education
Theme 3: Business Behaviour and
the
Labour Market
3.5 Labour Markets
Detailed Notes
www.pmt.education
, 3.5.1 Demand for labour
The demand curve for labour shows the quantity of labour that employers would wish to
hire at each possible wage rate.
Derived demand:
Firms hire workers in order to produce goods to meet their aim, usually of making a profit.
Therefore, the demand for labour is derived demand as it is derived from demand for the
product the labour produces. Businesses only want the worker for as long as people are
willing and able to buy the product they produce.
Factors influencing demand for labour:
● Wage rates: A wage is the price of labour and so has the same influence on demand
for labour as price has on the demand for a product. As wage rates increase,
demand for labour contracts since the MRP of labour must be higher for it to be
worthwhile employing more people, so less people are employed.
● Demand for the product: Since labour is a derived demand, if there is no demand
for the product, there is no demand for the labour. Firms won’t employ people if the
goods they make aren’t going to be sold and make a profit. An increase in demand
for the product leads to an increase in demand for labour. This is linked to the
concept of MRP: an increase in output or price of a good will increase demand for the
labour that produces that good.
● Prices of other factors of production: If machinery and equipment becomes
cheap, people will switch machinery for labour and therefore the demand for labour
will fall.
● Wages in other countries: If wages are lower in other countries and therefore
wages in the UK are relatively high, people will be employed in other countries as it
represents a lower cost for businesses. This means that demand in the UK is low.
www.pmt.education
