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Chapter 17: Problem 3

Why is the demand curve for labor downward sloping?

Short Answer

Expert verified
The demand curve for labor is downward sloping due to the Law of Demand and the principle of diminishing marginal productivity. The law of demand states that as wage rate (price of labor) increases, fewer labor hours (quantity) are demanded by employers, hence the downward slope. The principle of diminishing marginal productivity implies that each additional worker contributes less and less additional output, leading employers to demand less labor as the wage rate increases.

Step by step solution

01

Understand The Law of Demand

The Law of Demand states that as the price of a good or service increases, the quantity demanded decreases, all things being equal. Conversely, as the price of a good or service decreases, the quantity demanded increases. This is why a demand curve, which plots quantity demanded against price, is usually downward sloping.
02

Apply the Law of Demand to Labor

In the labor market, 'price' is the wage rate, and 'quantity' is the number of labor hours hired. So, as the wage rate increases (becomes more expensive), fewer labor hours are demanded by employers, and as the wage rate decreases (becomes less expensive), more labor hours are demanded. That's why the demand curve for labor is downward sloping.
03

Introduce the Concept of Diminishing Marginal Product

The Demand for labor is also driven by the principle of diminishing marginal productivity. This principle states that as a firm employs more labor, each additional unit of labor (worker) contributes less and less additional output. Therefore, to maximize the profits, employers will want to employ less labor as the wage rate increases.

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Most popular questions from this chapter

Daniel was earning \(\$ 65\) per hour and working 45 hours per week. Then Daniel's wage rose to \(\$ 75\) per hour, and as a result, he now works 40 hours per week. What can we conclude from this information about the income effect and the substitution effect of a wage change for Daniel?

Joe Morgan is a sportscaster and former baseball player. After he stated that he thought the salaries of Major League Baseball players were justified, a baseball fan wrote the following to Rob Neyer, a sports columnist: Mr. Neyer, What are your feelings about Joe Morgan's comment that players are justified in being paid what they're being paid? How is it ok for A-Rod [Alex Rodriguez, at the time a player on the New York Yankees] to earn \(\$ 115,000\) per GAME while my boss works 80 hour weeks and earns \(\$ 30,000\) per year?

In what sense is the demand for labor a derived demand?

Most labor economists believe that many adult males are on a vertical section of their labor supply curves. Use the concepts of income and substitution effects to explain under what circumstances an individual's labor supply curve would be vertical.

What are the two ways that the productivity of a firm's employees may increase when a firm moves from straighttime pay to commission or piece-rate pay? If piece-rate or commission systems of compensating workers have important advantages for firms, why don't more firms use them?
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