The following factors can increase the demand for labor:
Decrease in price of labor (or wage rate);Increased Profitability of FirmsIncrease in the number of buyers of LaborIncrease in the number of buyers of a productAvailability of substitutesShortage in the supply or availability of laborIncreased productivity of labor
Explanation:
1. Decrease in price of labor (or wage rate): The price of labor is inversely related to the quantity of labor that is demanded at any time T (all other factors remaining constant). When the price of labor increases, just as with most commodities, (all other factors remaining constant, the quantity of labor demanded will fall). If however, the prices decreases, there is rea for the demand for labor to increase as owners of the factors of production will want to take advantage of cheap labor.
2. Increased Profitability of the Business
The demand for labor is by its nature a derived one. Businesses hire labor because there is work/business to be done. Business or work is related to the profitability of the same. If a business owner finds that their business is profitable and the demand for their products/services is increasing, they will invariably hire more workers. The obverse is also true. A non-performing business, financially speaking, will most likely shed its workforce thus decreasing its demand for labor in order to stay above the red line.
3. Increase in the number of buyers of a labor
As the market expands, and more players enter into a market, it is possible (all other factors remaining constant) for the increase in the demand for labor to increase.
If however, the players (that is employers in a particular market) are fewer in number then the demand for labor will be restricted.
4. Increase in the number of "buyers" of a product
A market can be said to be expanding if the number of buyers for the products in that market is increasing.
There are some markets where there are very few buyers. Two of such markets are:
A) Oligopsony: A market where the buyers are few. A real-world example is the fast-food companies. In the United States, for example, Burger King, McDonalds, Wendys, etc are the major players who purchase huge amounts of beef from cattle ranchers. They are very few in number.
B) Monopsony: In this case, the market consists of only ONE buyer.
In the above-described markets, there can only a limited amount of demand for labor.
5. Availability of Substitutes
As technology begins to advance even far beyond the anticipation of humans everywhere in the world, the threat to the demand for labor seems imminent. Factors are begining to cut costs in the long run by replacing physical labor robots that are powered by Artificial Intelligence. This means they are able to get more work done with minimal downtime, minimal supervision, and minimal loss of productivity hours which normally arises with human labor.
6. Shortage of supply of labor
Whenever there is a shortage in the amount of labor that can be hired, the prices take on an upward spiral.
7. Increased productivity of labor
Productivity of labor refers to the output per unit of labor.
If the productivity of labor increases, employers will place a higher demand on it.
The productivity of labor can be enhanced by the following:
Level of education and trainingAbility to use technology
