Demand for labour
Also called: Labour demand curve · Topic: Factors of Production, Entrepreneurship and Startups · NCERT: Class 12, Ch 5 "Market Equilibrium"
Meaning
The demand for labour shows how many hours of work firms want to hire at each wage rate. A profit-maximising firm hires until w = MRPL = MR × MPL. Under perfect competition, MR = P, so the rule becomes w = VMPL = P × MPL. The marginal product of labour (MPL), meaning the extra output from one more worker, falls as more workers are added. So the firm hires more only at lower wages, and the curve slopes downward. The market demand curve is the horizontal sum of all firms' demand curves, and it also slopes downward.
Example
Suppose the price is ₹20 per unit and the wage is ₹120 a day. The VMPL of the first four workers is ₹200, ₹160, ₹120 and ₹80, so the firm hires 3 workers. If the wage falls to ₹80, it hires 4.
Don't confuse with
- Supply of labour: this comes from households choosing how many hours to work. Firms create the demand for labour.
Related concepts
- Derived demand
- Marginal revenue product of labour
- Value of marginal product of labour
- Labour market
- Supply of labour
- Income-leisure trade-off
- Backward-bending labour supply curve
- Equilibrium wage rate
- Wage rate