3.5.2 Labour Supply Flashcards
What is labour supply?
It is the number of workers willing and able to work in a particular job or industry for a given wage
The labour supply curve for any industry or occupation will be upward sloping. This is because, as wages rise, other workers enter this industry attracted by the incentive of higher rewards. They may have moved from other industries or they may not have previously held a job, such as housewives or the unemployed
What are some factors influencing supply of labour?
The real wage rate on offer in the industry itself – higher wages raise the prospect of increased factor rewards and should boost the number of people willing and able to work
2.Overtime: Opportunities to boost earnings come through overtime payments, productivity-related pay schemes, and share option schemes
3.Substitute occupations: The real wage rate on offer in competing jobs affects the wage and earnings differential that exists between two or more occupations. For example an increase in the earnings available to trained plumbers and electricians may cause some people to switch their jobs
- Barriers to entry: Artificial limits to an industry’s labour supply (e.g. through the introduction of minimum entry requirements) can restrict labour supply and force pay levels higher – this is the case in professions such as legal services and medicine where there are strict “entry criteria”
5.Improvements in the occupational mobility of labour: For example if more people are trained with the necessary skills required to work in a particular occupation.
6.Non-monetary characteristics of specific jobs – include factors such as the risk with different jobs, the requirement to work anti-social hours or the non-pecuniary benefits that certain jobs provide including job security, working conditions, opportunities for promotion and the chance to live and work overseas, employer-provided in-work training, employer-provided or subsidised health and leisure facilities and other in-work benefits including occupational pension schemes.
7.Net migration of labour – the UK is a member of the European Union single market that enshrines free movement of labour as one of its guiding principles. A rising flow of people seeking work in the UK is making labour migration an important factor in determining the supply of labour available to many industries – be it to relieve shortages of skilled labour in the NHS or education, or to meet the seasonal demand for workers in agriculture and the construction industry.
Describe two causes of market failure in the labour market (supply side).
- Occupational immobility occurs when there are barriers to the mobility of factors of production between different sectors of the economy leading to these factors remaining unemployed, or being used in ways that are not efficient.
- Geographical immobility refers to barriers to people moving from one area to another to find work.
Describe occupational immobility
People often experience occupational immobility. For example, workers made redundant in the steel industry or in heavy engineering may find it difficult to find a new job. They may have specific skills that are not necessarily needed in growing industries which causes a mismatch between the skills on offer from the unemployed and those required by employers looking for workers. This problem is called structural unemployment. Clearly this leads to a waste of scarce resources and represents market failure.
What are some reasons why geographical immobility might exist?
Family and social ties
The financial costs involved in moving home including the costs of selling a house and removal expenses.
Huge regional variations in house prices leading to a shortage of affordable housing in many areas
The high cost of renting property
Differences in the general cost of living between regions and also between countries
Migration controls e.g. a cap on inward migration
Cultural and language barriers
