In the introductory stage, every additional hour of labor purchased by a firm will yield large marginal revenue. However, as the increasing workforce produces a greater quantity of products, there may be a surplus and not enough demand for the goods. Additionally, after a certain point, extra workers and extra hours can be unproductive. Thus, after a point each additional hour of work will yield less revenue, which drags down the labor MPR below the wage and eliminating the market equilibrium of labor. Firms will logically hire a new worker or pay for extra hours only insofar as it is profitable. As the labor MRP falls, firms will hire less additional labor. When the MRP is high, they will purchase additional labor. Thus a firm's labor demand is directly correlated to the labor MRP.

The Effect...

As the demand for a good decreases the price for the good falls. This is often a result of the price being offset by a price increase of a complementary good.
price for the good falls. The lowered price affects the balance of the labor MRP. Since the MRP is equal to the selling price of the good multiplied by the marginal product of each worker, a decrease in price results in lowering the MRP of workers in that industry. Thus, the optimal point of labor consumption for firms in that industry shifts inwards. In at effort to stabilize labor and production, firms respond by cutting hours, lowering salaries,