13.3 Traditional labour market economics
We now turn to more theoretical considerations. Neo-classical economics sees labour as one of the factors of production, and in the short run it is the only variable factor. If the firm wishes to increase production in the short run, it can only do so by using more labour. In the longer run, the firm can also use more capital and/or land. Labour is exchanged in the labour market according to the laws of demand and supply. Wages are seen as the price which responds to changing market conditions. In short, we return, yet again, to basic demand and supply analysis.
13.3.1 The demand for labour