Economics of Compensationy

Law of Labor Demand and Supply

Dr. Moslehuddin Chowdhury Khaled

Associate Professor, Dept of General
Management and HRM
Director, CEISD
Chittagong Independent University
Topics
 Market – Demand – Supply
 Background discussion price and demand, price and
supply from Micro economics
 Law of Labor demand – labor demand schedule - curve
 Movement along the curve
 Shift of the curve
 Law of Labor Supply – Labor supply schedule - curve
 Movement along the curve
 Shift of the curve
 Assignment
What are the types of Market? –
Demand and Supply Side

Market Demand Supply

Side Side
Capital Firms/ Financial
Mkt Businesses Institutions/
Households
Labor Firms/ Households/
Mkt Businesses individuals
Product Households/ Firms/
Mkt consumers Businesses
Capital market and Labor market – derived market –
their demand is derived from product demand
Labor demand schedule

 Labor Demand Schedule shows the relationship

between wage and no. of workers demanded in a
tabular form. The relationship is: If wage rate
increases, quantity of labor demanded decreases.

Wage rate quantity of workers

demanded
20 100
30 90
40 80
Labor demand curve
Wage
 Demand curve shows the
relationship between wage
and no. of workers demanded
in a graphical form. The
relationship is: If wage rate
increases, quantity of labor
demanded decreases.

LD
 wage is independent variable,
is put on the y axis
 quantity of labor is QLD
dependent variable, put on No. of Workers
the x axis demanded by the
firms
 So the labor demand curve is
negatively sloped.
Why LD curve is
downward/ negatively sloping

 Labor Demand Curve is a Downward sloping/ negative sloping Curve,

 because with a increase in wages the no. of workers demanded by the firms
decreases.
 That means the relationship of wage and labor demanded is negative or
inverse.
movement and shift of LD
 Thereare a number of factors that affect the
demand for labor –
 wage rate,
 product demand,
 capital price or interest rate

 Effect
of wage change can be shown as a
movement along the LD curve upward or
downward

 Effect of other factors changes can be shown

with a shift of LD curve rightward or leftward
Movement along the LD curve / effect
of changes in wage rate

wage
LD
 If wage rate increases from
w2 to w1, quantity of labor
demanded decreases from
w1
L2 to L1.

w2
 If wage rate decreases
from w1 to w2, quantity of
labor demanded increases
from L1 to L2
L1 L2
labor
Shift of LD curve
 If LD changes because of any factor other than wages, then
there will be a Shift in the curve.

 If LD increases at all wage rate, this can be shown as a

rightward shift in LD curve. It means more workers are
demanded by the firms at all wage rates than before.

 If LD decreases at all wage rate, this can be shown as a

leftward shift in LD curve. It means less workers are
demanded by the firms at all wage rates than before.

Wage

W LD2
LD1 No. of Workers
demanded by the firms
Law of Labor supply

 If w increases, LS increases
 If w decreases, LS decreases

 Ceteris Paribas

 Show in schedule and graph

 (classroom exercise and assignment)