Supply and Demand of Labor

What causes shifts in the supply and demand curves for labor? How are equilibrium wage and quantity of labor determined?

Simply put, the hypothetical supply and demand curves for labor shift when changes occur in either the available supply of labor or the demand for it. The next logical question, of course, is "what comprises the supply of and demand for labor and why do those things change?"

The supply is made up of individuals who are considered "in the labor market" because they have services to sell. The supply can increase (causing the curve to shift to the right):

Stay Engaged

Receive our weekly emails!

1. if wages rise (causing more people to be attracted to the market as sellers of labor services);

2. if population increases;

3. if attitudes change, such as more women wanting to leave home and enter the workforce;

The supply can decrease through emigration, falling wages, negative attitudes toward work, or even warfare (which removes people involuntarily from the workforce).

The demand for labor is also affected by its cost (demand goes up if unit labor costs through falling wages or rising productivity go down), by changes in the size of the workforce, etc.

I know that textbooks are fond of speaking of an "equilibrium" level of wages but it's important to understand that though the market is always tending toward a state of rest or stability, it never actually achieves it for long because conditions and attitudes and values are ever-changing. There is a strong tendency in free markets for wages to reach an equilibrium as all the various factors mentioned in my first few paragraphs above influence the market and cause adjustments to wage rates accordingly.