T H E D E M a N D for Labor in the Long Run

The demand for labor in the long run should be important to labor economists for a variety of reasons. So long as the supply of labor to an occupation, industry or area is not perfectly elastic in the long run, the nature of demand for labor in that subsector interacts with the shape of the supply function to determine the level of wages. As in the market for a commodity, so too in the market for labor the demand is an integral determinant of the price of what is exchanged. In many cases economists are interested in the demand for labor for its own sake rather than for its effects on wage determination. In some instances, e.g. in unionized employment or where the supply of labor to a subsector is perfectly elastic, the wage can be viewed as unaffected by labor demand. In such cases knowledge of wage elasticities of labor demand allows one to infer the effects of exogenous changes in wage rates on the amount of labor employers seek to use. The impact of changes in the price of one type of labor on its employment and on the employment of other types of labor (cross-price effects) can be discovered using estimates of labor-demand relations alone. Alternatively, one can in many instances assume that the employment of workers of a particular type is fixed (and determined solely by the completely inelastic supply of such workers to the market). In those cases the demand for their labor determines the wage rate they are paid. Knowledge of the shape of the labor-demand function enables one to infer how exogenous changes in supply (due perhaps to changes in the demographic mix of the labor force or to shifts in suppliers' preferences for entering different occupations) affect the wage rate of workers in the group whose supply has shifted and in other groups too (cross-quantity effects). Economists interested in policy questions should be concerned with issues of labor demand. The effects of any policy that changes factor prices faced by employers will depend on the structure of labor demand. Thus, to predict the