industry demand for labour

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The demand for labour by an industry as a function of the wage rate. At any given wage rate, industry demand for labour depends on output. If wage rates fall, this can raise industry demand for labour in three ways. First, labour may be substituted for other inputs; second, a reduction in costs may lower price and increase demand for the industry's output; and third, in the longer run a rise in profits may induce new firms to enter the industry and take on additional workers. Industry demand for labour is more elastic the better the opportunities for substitution between labour and other inputs, the more elastic the demand for the industry's output, and the more elastic the supply of potential entrants.

Subjects: Economics.

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