Question

Supply and demand of labor market is very similar as supply and demand of goods and service market. The difference is the focus: labor. So the price of labor market is wage rate and quantity represent the quantity of labor hour. Just as other S&D factors, price (wage rate) change will not affect the labor supply or demand. factors other than price (wage rate) will shift the supply and demand. Since demand for labor is from companies, you must take company's perspective. What factors will drive the companies to hire more workers? These are demand factors. On the other hand, what factors will drive workers willing to work more hours? These are supply factors. Will you be able to list a shift factor? Thanks.

Answer 1

From the perspective of companies, factors such as lower wage rates, high inflationary pressure and demand for output to be produced by the company, will drive the companies to demand and hire more workers.

Factors making workers to work for more hours are the higher wage rates, high real value of wage and lower opportunity cost of working hours. These factors will make the workers to work more, earn more and get more wealthier in terms of more income.

Shift factors are as follows.

1. More output demanded in the market (shift the demand to the right and increase the demand of workers)

2. Change in price level in the economy (Higher price, decreasing real value of wage and increasing the demand of workers, right shift in demand)

3. Increase in immigrant workers (Supply shifts to the right and increase the supply of workers

4. Change in technological advancements