When labour productivity increases, the demand for labour curve ________ and the supply of labour curve ________.

Question

Quizplus · Accepted Answer

An increase in labour productivity means that more output can be produced with the same amount of labor input. This leads to a decrease in the demand for labor as fewer workers are needed to produce the same output. However, it does not directly affect the supply of labor, which is determined by factors such as population growth, immigration, and participation rates. Therefore, the demand for labor curve shifts leftward while the supply of labor curve does not shift. This results in a decrease in equilibrium wage rate and an ambiguous effect on employment levels.

When Labour Productivity Increases, the Demand for Labour Curve ________