Chapter 8 The demand for labor in the long run

Abstract

Publisher Summary The chapter presents a discussion on the demand for labor in the long run, which is important to labor economists for a variety of reasons. As in the market for a commodity, similarly in the market for labor, the demand is an integral determinant of the price of what is exchanged. The purpose of studying the demand for labor is to understand the ways in which exogenous changes will affect the employment and/or wage rates of a group or groups of workers. The chapter begins by examining the theory of labor demand. The theoretical discussion is divided into two parts: demand for labor in the two-factor case, and demand in the multi-factor case. In each part, first the results are derived generally, followed by specific functional forms. The chapter presents the issues involved in estimating labor-demand relations for one type of homogeneous labor, and then summarizes the state of knowledge in this area. The focus throughout is on the relations between exogenous wage changes and the determination of employment, and between exogenous changes in inelastically supplied labor and the structure of relative wages. It is assumed throughout that employers are perfect competitors in both product and labor markets. The chapter focuses only on the long-run, or static theory of labor demand, and thus only on the long-run effects of exogenous changes in wage rates or labor supply.