The demand for labor:
Demand for labor is a derived demand. The modern production is taken on largely on the basis of anticipation of demand for goods. Throughout good trade, demand for labor will be more. Again, when capital is cheap, the employer will try to replace capital for labor. Whenever there is raise in investment, there will be raise in demand for labor.
In a competitive labor market, equilibrium will be established at the wage which equates the demand for labor with the supply of labor.
Figure: Diagrammatic example of determination of wages in a market
In figure above, DL curve symbolizes demand for labor and SL curve symbolizes supply of labor. Demand and supply of labor are represented all along the X axis and wages are presented up to the Y axis. Wages are determined (i.e., OW) at that point (i.e., E) where the demand for labor is equivalent to the supply of labor (i.e., ON).
When demand for labor is high associative to its supply, wages will be high and vice-versa. On supply side, there are numerous imperfections. There is geographical immobility of labor. There might be shortage in the supply of some categories of labor (example, doctors & engineers). In some industries, the supply of labor is controlled by the trade unions.
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