Determinants of Labor Demand

Determinants of Labor Demand
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  • Burgers  $5 Milkshake $3 Fries  $2
  • Determinant of Labor Demand: Output Price
  • If I increase the price of my burgers to $7, my demand for labor will increase and I can hire more cooks!
  • Joe's Diner
  • Determinant of Labor Demand: Technological Change
  • These new check out belts increase my productivity and the value of my labor.
  • Determinant of Labor Demand: Supply of Other Factors
  • Supply of ladders and tires is low right now, which decreases my productivity and the value of my labor.
  • Since the demand curve represents value of the marginal product, and VMP is equal to marginal product times price, an increase in price results in an increase in labor demand. 
  • Most of the time, technology helps workers produce more, resulting in greater marginal product and therefore increased VMP and demand for labor. 
  • If the supply of other production inputs, like capital goods, decreases, the marginal product of labor will decrease, decreasing VMP and labor demand as well (or vice versa). 
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