Labour elasticity of supply (LES)

Define the term ‘Labour elasticity of supply’

Measures the responsiveness of the quantity supplied of labour given a change in the wage rate.

How does skills & qualifications effect LES?

When the minimum skill factor required to work in an industry is low, it becomes easier to become employed. This is because the pool of available labour will be large since there is less time required to build up skills or to gain qualifications. This means that a small change in wages will lead to a more than proportionate change in the supply of labour, suggesting elastic supply. This leads to a lower equilibrium wage rate.

When lots of skills and qualifications are required to work in an industry, despite a large change in wage rates there is a lengthy and costly training process accosiated with it making the pool of available labour lower in the short run. This means that the supply of labour will be less responsive to a change in the wage rate, suggesting Inelastic supply. This leads to a higher equilibrium wage rate.

How do unemployment levels affect LES?

When unemployment is high, people are desperate for an income to afford basic necessities. This means that a small change in wages will cause a more than proportionate change in labour supply, suggesting elastic supply. This leads to a lower equilibrium wage rate as workers are more willing to accept these lower wages.

When unemployment is low, the pool of available labour is also low. This means that a large change in wage rates will cause a less than proportionate change in labour supply, suggesting inelastic supply. This leads to a higher equilibrium wage rate.

How does the time period affect LES?

In the short run, even if wages rise individuals have less time to train/apply for a particular profession meaning that supply will be less responsive to a rise in the wage rate, suggesting Inelastic supply.

In the long run, if wages rise individuals have more time to train/apply for a particular profession meaning that supply will be more responsive to a rise in the wage rate, suggesting elastic supply.