15.12: Shift in Labor Demand II

A shift in the market demand for labor occurs when the number of workers that employers wish to hire changes at any wage level. Such changes in demand can occur due to factors other than wage changes. Examples include product price changes and technological advancements in production processes.

A rightward shift in the labor demand curve means employers want to hire more workers at each wage level, while a leftward shift indicates they want to hire fewer workers at each wage level.

Technological changes are a key factor influencing shifts in labor demand. The direction of the shift depends on whether the technology complements labor or substitutes for it.

Labor-augmenting technology, such as computer-aided design (CAD) software, is a complement to labor that enhances worker productivity, enabling them to produce more output in the same amount of time. This increase in productivity increases the value of the marginal product of labor (VMPL) and shifts the labor demand curve to the right. Additionally, there may be new uses for labor. For example, there is increased demand for specialized skills to maintain and repair advanced software and hardware systems.

In contrast, labor-displacing technologies, such as advanced automation systems, substitute for human labor by performing tasks previously carried out by workers. This substitution reduces the value of the marginal product of labor (VMPL), which decreases the demand for labor at all wage levels and shifts the labor demand curve to the left.

Technological changes can shift the market demand curve for labor. If the new technology complements labor productivity, the demand for labor will shift to the right. If the new technology replaces labor, the demand for labor will shift left.

The jobs of industrial workers are being affected by the increasing use of labor-saving technology such as industrial robots and automated machinery.

For example, online retailers use advanced robotic arms in their warehouses to pick products off a conveyor belt, place them in containers, and store them in tall pods. This technology moves products into the warehouse and makes them available for delivery with minimum human intervention. So, the market demand for labor working in the warehouse decreases, shifting it to the left.

However, there is an increased need for specialized skills to maintain and repair advanced machinery. So, the market demand for automation technicians increases, and their demand curve shifts to the right.

Government regulations can also shift the market demand curve for labor.

For example, in the United States, the Energy Policy Act of 2005 promotes clean energy initiatives such as higher production of natural gas. This increased the demand for labor, such as electricians and construction workers.