3.5.2 Supply of labour

Question 1

What is an individual’s labour supply?

Answer 1

The total number of hours which that person is willing to work at a given wage rate.

Question 2

What is an occupation’s labour supply?

Answer 2

The number of workers willing to work in that occupation at a given wage rate.

Question 3

What happens to the quantity of labour supplied when the wage rate for an occupation increases.

Answer 3

The quantity of labour supplied increases:

• Usually, individuals are prepared to work more hours as the wage rate increases. However, there’ll be a limit to how many hours an individual will be prepared to work, even if wages continue to rise.
• Although individual workers have a limit to the amount of labour they’re willing to supply, high wages will attract more workers to an occupation and increase the labour supply.
• This means that the supply curve for labour in an occupation slopes upwards.

Question 4

Influences on the supply of labour

Answer 4

• Welfare gained by employee - from both monetary and non-monetary wages.
• The size of the working population - For example, if there’s an ageing population with a large proportion of people in retirement then there may be insufficient workers to meet demand for labour.
• The competitiveness of wages - Workers may pick the job that will pay them the highest wage. Firms/industries that pay poor wages may struggle to attract enough labour.
• The publicising of job opportunites - It may be difficult to attract sufficient workers to a particular job/industry if jobs are not advertised effectively.

Question 5

What are the two types of welfare gained by employees of a firm for working?

Answer 5

• Monetary benefits
• Non-monetary benefits

Question 6

Monetary benefits

Answer 6

The welfare a worker gains from the wage they receive.

Question 7

Non-monetary benefits

Answer 7

The welfare a worker can gain from non-wage benefits of their jobs.

Examples of these benefits include:
- Flexible working hours
- Employee discounts
- Training available
- A generous holiday allowance
- Job security
- Perks of the job (e.g. a company car)

Question 8

What jobs tend to have low non-monetary benefits?

Answer 8

Unpleasant or boring jobs with low job satisfaction.

Ceteris paribus, workers doing these jobs will want a higher wage to compensate for the low non-monetary benefits they receive.

Question 9

Elasticity of the labour supply

Answer 9

The sensitivity of supply on changes in the wage rate.

Question 10

Main determinants of the elasticity of Labour supply

Answer 10

• The level of skills and qualifications needed for a job
• The mobility of labour

Question 11

How does the level of skills and qualifications needed for a job affect the elasticity of supply for labour?

Answer 11

Question 12

How does the mobility of labour affect the elasticity of supply for labour?

Answer 12

• If workers are occupationally mobile (they can move from one occupation to another quickly), then wage rises will cause greater increases in the supply of labour – labour supply will be more elastic.
• If workers are geographically mobile (they can move locations to where the jobs are), then wage rises will cause greater increases in the supply of labour – labour supply will be more elastic.

Question 13

How does net migration of labour affect the supply of labour in an economy?

Answer 13

It can increase the supply of labour.

• For example, the EU supports the free movement of labour between its member states.
• Net migration of workers to a state can increase the supply of labour and help alleviate shortages of skilled workers.
• It can also help with the increased demand for seasonal workers, for example in agriculture and construction.

Question 14

Wage flexibility

Answer 14

The ability of real wages to change in response to changes in demand for and supply of labour.

Question 15

Examples of flexible wages

Answer 15

Performance-related pay and regional pay awards

• Regional pay awards are used to account for variations in living costs in different regions, e.g. workers in London are usually paid higher wages than workers elsewhere in the UK because it’s more expensive to live there.

Question 16

How can governments improve wage flexibility?

Answer 16

By scrapping the NMW and limiting trade union power.

Question 17

What is a flexible labour force?

Answer 17

One where workers can transfer between activities quickly in response to changes in the economy.

• For example, a worker in a flexible labour force would be able to retrain or transfer their skills to another job easily if something badly affected the industry they were employed in.

Question 18

Strategies the government could use to increase the flexibility of the workforce

Answer 18

• Promote or subsidise training and education schemes that help workers gain skills and knowledge that are attractive to employers. They can also provide training directly, e.g. skills training to the unemployed.
• The UK government has also increased flexibility by reducing the power of trade unions, which can cause inflexibility in the labour market (e.g. by negotiating for longer working contracts).

Question 19

How can the type of contract affect labour force flexibility?

Answer 19