3.5.2 Supply of labour Flashcards
Supply of labour
The supply of labour curve shows the ability and willingness of people to make themselves available to work at different wage rates.
Factors influencing supply of labour
- Wages
- Population and distribution of age
- Non-monetary benefits
- Education/training/qualification
- Trade unions and barriers to entry
- Wages and conditions of other jobs
- Legislation
Wages
The supply of labour curve for an individual is a backward bending curve: an increase in wages will lead to an increase in hours worked at first but beyond a certain point, it will lead to a decrease in hours worked.
However, we are concerned with the supply curve for a particularly occupation; this is more likely to be the typical upward sloping curve. Firms can increase the number of hours worked by its workforce in two ways: it can increase the number of hours by its existing labour force or it can recruit new workers. Therefore, although an increase in wage rates may not increase the number of hours worked by existing labour, it will increase the number of workers. This is because new workers may join from other industries or from being unemployed.
Population and distribution of age
A high population will mean there is a large supply of labour. The distribution of age is important as there needs to be many people of high working age to ensure there is lots of labour. Migration plays a role in determining the workforce, since many migrants are of working age and come to the UK to work.
Non-monetary benefits (closer to home)
Supply of labour will increase if there is high job satisfaction, for example in vocational jobs. Some jobs are attractive because they are close by or in an area with good social life, such as London, require little commuting or are near friends and family. Similarly, some jobs offer perks such as free private healthcare etc. which will increase supply. Factors such as holiday, hours of work, flexibility and opportunities for promotion also play a significant part.
Education/training/qualification
More educated workers means there is a higher supply of workers. This is particularly important for some industries which require qualifications. Occupations which require high levels of education may suffer from lower supply of labour compared to low skilled jobs.
Trade unions and barriers to entry
Trade unions may be able to restrict the supply of labour by introducing barriers to entry, for example you have to have a degree for teaching.
Wages and conditions of other jobs
If many jobs in a local area are considered to be unpleasant and offer low wages, then supply for alternatives will be higher.
Legislation
The government rules can affect supply of labour, for example school leaving age and the retirement age.
Market failure in labour markets
The labour market should operate in the same way as any other. An increase in wages should attract labour to the industry and a fall in labour should mean labour leaves industry.
However, labour is not a perfectly free market: immobility of labour
Immobility of labour
Labour can suffer from either occupational or geographical immobility.
- Immobility can mean that there can be excess supply of labour in one area/occupation and excess demand in another. Even if wages are higher where there is excess demand, people will be unable to leave where there is excess supply to get a job in that area/occupation because of their immobility.
Occupational mobility
The market can suffer from occupational immobility where workers find it difficult to move from one job to another because of a lack of transferable skills. It is particularly difficult in the short term when workers need to get new training but in the long run it may only be possible at a high cost.
Geographical immobility
Markets can suffer from geographical immobility where they find it difficult to move from one place to another due to the cost of movement, family etc. There may be no jobs available in Glasgow, but jobs in London. Unfortunately, someone from Glasgow will struggle to get a job in London as they may not know about the vacancies, it would be expensive to attend interviews and they would have to leave their family behind.
Housing is also a big issue because people may not be able to afford to buy a house in their new area. They may also struggle if they need to find social housing and it is difficult for young people, since they often do not have the money to move out of their parents’ home. In general, those on lower incomes are more geographically immobile.
Labour supply context
The UK suffers from a severe skills shortage and this could cost £90bn a year following Brexit. There are four million too few high skilled people but six million too many low skilled people. Engineering is one industry suffering particularly badly from skills shortages
Elasticity of supply
The responsiveness of supply to a change in wage rates.
