6.2 - Influences on the supply of labour to different labour markets

What is the supply of labour?

The supply of labour is calculated by the number of workers willing and able to work at the current wage rate, multiplied by the number of hours they can work. It is influenced by monetary and non-monetary considerations.

What are non monetary considerations?

Non-monetary considerations include how satisfied workers are with their job and their working conditions.

What are monetary considerations?

The money wage rate

What are the benefits of non monetary considerations?

When a worker enjoys the job, the net advantage of work is greater than the welfare yielded by the wage. In this situation, the worker is willing to work for a money wage Lowe rthan the wage that would be acceptable if there were no satisfaction from the work itself.

Benefits of monetary considerations?

Some workers, such as routine assembly line work in factories and heavy manual labour is unpleasant, yielding job dissatisfaction. High wages are used to incentivise this work.

At what point is maximum personal welfare achieved as a worker?

The worker must supply labour up to the point at which:

Utility of welfare from the last unit of money earned = Utility of welfare from the last unit of leisure time sacrificed

What does a higher wage do to personal welfare?

With a higher wage rate, the welfare derived from the wage becomes greater than the welfare derived from the last unit of leisure time enjoyed. To maximise personal welfare at the higher wage rate, the worker would be expected to supply more labour and enjoy less leisure time.

How do changes in income shift the supply curve of labour?

It is reasonable to assume the leisure time is a normal good for most people, so a rise in income increase the demand for leisure time, which in turn causes the supply of labour to shift to the left. However, for a few people, leisure time might be an inferior good. For the, higher income reduced their demand for leisure time and they end up supplying more labour.

How do changes in population shift the supply curve of labour?

A rise in population, perhaps caused by immigration, increases the supply of labour; a reduction lowers it. A fall in the number of people of working age causes the labour supply curve to shift to the left, except perhaps when this is offset by those who have reached retirement ahead of deciding to work longer in order to finance their eventual retirement.

How do changes in expectations shift the supply curve of labour?

Likewise, if older people expect to live longer yet become less optimistic about their future pensions, this could increase the labour supply. A rise in the proportion of people staying on in further and higher education will tend to reduce the supply of labour.

What is the elasticity of supply of labour?

Proportionate change in the supply of labour following a change in the wage rate.

How is elasticity of supply of labour calculated?

Proportionate change in quantity of labour supplied / Proportionate change in the wage rate

What factors determine the wage elasticity of supply of labour?

- Supply of unskilled labour is usually more elastic than the supply of a particular type of skilled labour. This is because the training period is short and any innate abilities required are unlikely to be redirected to a small proportion of the total population

- factors which reduce the occupational and geographic mobility of labour tend to reduce the elasticity of labour supply

- The supply of labour is also likely to be more elastic in the long run than in the short run

- The availability of a pool of unemployed labour increases the elasticity of supply of labour, while full employment has the opposite effect

How does the demographics of a population affect the supply of labour?

The more people there who are able and willing to work, the higher the supply of labour. This changes with retirement and school leaving ages, the number of university students and immigration.

How does migration affect the supply of labour?

Migrants are usually of working age, so the supply of labour at all wage rates tends to increase. Migration particularly affects the supply of labour at the lower wage rates, because migrants are usually from economies with average wages lower than the UK minimum wage.

How do the advantages of work affect the supply of labour?

This can influence how much people prefer to work, and is linked to non-monetary advantages. If the cost of working is lower, so families can afford childcare, people are more likely to work. If the benefits of working are high, such as holiday entitlements and the potential to be promoted, the supply of labour is likely to increase. It also considers job satisfaction and how good the working conditions are.

How does leisure time affect the supply of labour?

These could attract workers to the labour market, because they know their employment rights will be defended. However, the limits on workers, such as limiting their ability to strike, might cause some people to withdraw from the labour market.

How do trade unions affect the supply of labour?

These could attract workers to the labour market, because they know their employment rights will be defended. However, the limits on workers, such as limiting their ability to strike, might cause some people to withdraw from the labour market.

How do taxes and benefits affect the supply of labour?

If taxes are too high and benefits are too generous, people might be more inclined to withdraw from the labour market.

How does training affect the supply of labour?

If a lot of training or high qualifications are required for a job, then the supply of labour may fall. However, if the government subsidise training, it is easier for workers to gain the necessary skills for a job, so the supply of labour could increase.