THE LABOR MARKET - Essay Example

No individual firm can influence the wages of labor, and neither can labor unions, whose primary role is to fight for better work conditions and better pay for its members. In the short-run, the curve for labor demand is not flexible and is steep because, in a short time, firms do not get the adequate opportunity to respond to rapid changes in the market (Flinn, 2010). But in the long-run, this curve is flexible and flat since firms can adjust their schedules and processes to meet market changes.

In a competitive market, a company will only hire some workers whose marginal benefit in productivity is the same as the marginal cost of labor. The company will only employ the number of employees it will be able to afford at the wage rate set by the market. When a firm uses cheaper substitutes of labor, like machines, the demand for labor will decrease. If these tools are readily available, more efficient than manual labor, and the cost of employing labor substitutes is less than the marginal cost of labor, firms will demand less of labor.

Availability of labor alternatives is being enhanced by rapid changes in technology, which produces equipment and machinery that can easily replace human labor. Another factor that would lead to a decrease in the demand for labor is a change in the number of firms in a particular industry. When there are numerous barriers to entry into an industry, the firms there will be few, and demand for labor will not increase when all other factors are held constant. Where there are few or no barriers to entry, an industry becomes very competitive so that firms can easily enter and trade.

An increase in firms increases the demand for labor since human capital is needed to run these new companies. If the market price of the product or service a company produces increases, the demand for labor will increase in the short-run and reduce in the long-run. When the prices rise, sales will yield