Urban: City's Labour Demand and Supply

 

Describe in detail the factors that shift a city's labour demand and supply curve. What happens if there is an increase in demand for export goods?

A city’s labour demand can shift to supply curve for several factors.  Under the ceteris paribus assumption, the labour demand curve depicts the number of workers that businesses seek to hire at any given salary or wage rate. If wage goes up, so as the quantity demand of labour.

First, from the technology factor, technology to supports labour will raise demand for specific types of work, causing the demand curve to shift to the right. For example, as the use of word processors and other programming tools has grown, so has the demand for information technology specialists who can troubleshoot network software and hardware difficulties. As technology improves, so will the demand for competent individuals who understand how to use it to boost workplace productivity. Any workers who refuse to adapt to technological change will realise their demand become lower. Also, if the demand for skilled workers increase, the investments for human capital would also be increased.

Next, for the labour productivity factor, if there would be an increase in labour productivity, the production cost will decrease as employer does not have to buy technology to complements labour. Hence, it will allow firm to cut prices as the production cost become lower.  As the price goes down, the demand of output will increase. Firm would be able to increase the output and hire more workers since the production cost are low.  The demand curve of labour would shift to the right. The labour productivity increase with capital deepening, technological progress increases in human capital as well as the agglomeration economies.

Furthermore, the demand of labour would also shift because of the taxes that have been implemented to firms. If the business taxes increase, firm would move the burden to customers by increase the cost of production.  As the price of the product increase, it will decline the quantity production as the demand for the products would also decline.  Hence, the quantity demand of labour would decrease as firm does not need more worker to produce products that in low demand.

However, the supply curve will shift for other factors, such as when there is increase of residential taxes such as property tax without a corresponding change in public services, it will decrease the relative attractiveness of that city, resulting to migration of workers.  Hence the supply curve would shift to the left.

If there is an increase in demand for export goods, it will rise the production of export goods and decrease the import goods of one city. The demand curve will shift to the right. Hence, at every level of wages, there would be more workers demanded.

To conclude, the output effect would determine the position of the demand curve of labour and it is negatively sloped.  While the supply  curve of labour is positively sloped.