8.3.2—Labour demand determinants

A firm’s demand for labour is derived from the demand for its product. It tends to rise with a higher product price, stronger product demand, higher worker productivity or more productive complementary capital.

The wage is one determinant, but it moves along the labour-demand curve rather than shifting it in the simplest model. Technology can substitute for labour or complement it, so “technology raises demand” is not a universal rule.

A rise in demand for restaurant meals raises the value of extra servers; a labour-saving ordering system may reduce demand for routine tasks but increase demand for technicians.

Do not treat a higher wage as a shift in labour demand, and do not assume all workers are affected equally by a technology change.