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Why is the demand for labor called a derived demand?

Why is the demand for labor called a derived demand?

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The demand for labor is described as a derived demand because it derives from the demand for products which use labor in the process of production.

The labor market is determined by demand and supply. Labor market participants are both workers and firms. Workers are supplying services to businesses in exchange for pay. Companies are seeking jobs from employees in exchange for pay.

The demand for labor from the firm is a derived demand; it derives from the demand for the production from the company. When competition for the company's production grows, the firm can competition more labour and recruit more workers. If the company's demand for production decreases, the company would need less labour and raising its work force.

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