3.5 - Supply of labour

Question 1

Factors influencing supply of labour

Answer 1

• Training period
  > Long training periods act as a barrier to entry and exclude many households from offering labour in certain markets
• Wages in other occupations
  > Comparative wage rates in substitute labour markets strongly influence the supply of labour
• Changes in migration policy
  > Policies that increase the net migration rate increase the supply of labour to certain industries
• Income tax levels
  > At a certain level, income taxes become a disincentive to households offering their labour. The assumption is that as income tax increases, labour supply decreases - and vice versa
• Working conditions
  > The working conditions and non-pay benefits can act as strong incentive in certain industries
• Trade union power
  > Trade unions can increase the supply of labour to certain industries as workers consider the benefits of belonging to the union e.g higher wages and a safer working environment
• Level of welfare benefits
  > The higher the level of welfare benefits, the lower the incentive for low-skilled labour to offer their labour - and vice versa
• Social trend
  > Social trends include any major changes within society and can influence the supply of labour to certain industries.
  > eg: Covid resulted in significant changes to the labour market once economies opened up again e.g many workers did not feel safe returning to the jobs they previously had

Question 2

When does market failure in the labour market occur?

Answer 2

Market failure occurs in the labour market when workers are unable to easily move between jobs.

Question 3

What may lead to market failure in the labour market?

Answer 3

1) Geographical immobility of labour

2) Occupational mobility of labour

Question 4

Explain geographical immobility of labour

Answer 4

• This occurs when workers find it difficult to move from one geographical area to another in order to secure employment.
• Barriers to mobility may include family ties, lack of information about possible jobs in different parts of the country, and the challenges in securing/affording accommodation in an unknown location and weak transport infrastructure

Question 5

Explain occupational mobility of labour

Answer 5

• This refers to the ability of a worker to change occupations when they lose a job.
• If their skill base is transferable between different occupations, then their occupational mobility is high.
• In reality, many workers are not able to easily transfer between occupations and this is a particular issue when an economy is faced with structural unemployment