What is 'Demand For Labor'

Demand for labor is a concept that describes the amount of demand for labor that an economy or firm is willing to employ at a given point in time. This demand may not necessarily be in long-run equilibrium, and is determined by the real wage, firms are willing to pay for this labor, and the amount of labor workers are willing to supply at that wage.

BREAKING DOWN 'Demand For Labor'

Demand for labor increases market wages and more workers enter the market. But this higher cost of labor will mean that employers will use less labor because it's more expensive.

Assuming there are a large number of employers in a region, or that workers are highly mobile geographically, the wages that a company will pay workers is dependent on the competitive market wage for a given skill set. This means that any company is a wage taker, which is simply another way of saying companies must pay competitive wages in order to obtain workers.

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