3.5.2 Supply of Labour Flashcards
What is the labour supply?
The labour supply is the number of hours that people are willing and able to work at a given wage rate
What does the labour supply curve look like?
Explain the labour supply curve and the relationship with wages
- The labour supply curve for
any industry or occupation will
be upward sloping. - As wages rise, other workers
enter this industry attracted
by the incentive of higher pay - The extent to which a rise in
the prevailing wage or salary
in an occupation leads to an
expansion in the supply of
labour depends on the
elasticity of labour supply
Explain at factors causing shifts in the supply of labour to an occupation/ industry
- Real wage rate on offer in the industry itself plus extra pay – e.g. overtime, productivity pay, share options
- Wages on offer in substitute occupations: e.g. increase in the earnings for plumbers and electricians may
cause people to switch their jobs - Barriers to entry: Artificial limits to an industry’s labour supply (e.g. minimum qualifications might be needed)
can restrict supply and increase average wages compared to other jobs - Improvements in the occupational mobility of labour and stock of human capital e.g. as result of expansion
of apprenticeships and other types of work experience – increases numbers who can work in a given job - Net migration of labour – e.g. net inward migration expands the active / available labour supply in many
occupations such as people working in the National Health Service, construction and farming
What are non-wage factors affecting labour supply?
What is elasticity of labour supply?
Elasticity of labour supply describes the responsiveness of the quantity of labour supplied in response to a wage
change
What do different elasticities of labour look like on a graph?
What are factors affecting elasticity of supply of labour to an occupation / industry?
- Nature of skills and qualifications required to work in an industry
- Vocational nature of work - in jobs such as nursing, people are less sensitive to changes in wages when
deciding whether to work and how many hours to work - Time period
How does the nature of the job affect elasticity of labour supply?
o Specific skills and educational requirements make supply inelastic
o Lengthy and costly training periods makes labour supply inelastic
o When the minimum skill factor needed is relatively low, then the pool of available labour will be large,
making labour supply elastic
How does the time period affect elasticity of labour supply?
o In the short run, the supply curve for labour to a job tends to be inelastic
o It takes time for people to respond to changes in relative wages and earnings – especially if people
need to be re-trained
o When labour is geographically and occupationally mobile, then labour supply will tend to be relatively
elastic even in the short term
What are the causes of market failure in labour markets?
What is geographical immobility of labour?
Geographical immobility refers to the barriers to people moving from one area to another to find work.
Give reasons why geographical immobility exists and persists.
- Family and social ties – older people more reluctant to move
- Financial costs involved in moving home including the costs of selling a house and removal expenses.
- Regional / local variations in house prices leading to a shortage of affordable housing in many areas
- High cost of renting a suitable property
- Differences in the cost of living between regions and countries and variations in tax and pension systems
- Migration controls e.g. possible caps on inward migration
- Cultural and language barriers to living and working overseas
- High transport costs,
What is occupational mobility/immobility of labour?
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.
Give the causes of occupational immobility.
- Skills gaps: New jobs may require different skills from those that unemployed workers can offer.
- Training gaps: Unemployed workers may not have access to affordable training schemes that would allow
them to improve their human capital and improve employability - Experience gaps: The long term structurally unemployed often have gaps in their CVs that make less them
attractive to employers - Confidence and motivation: The longer someone is unemployed, the harder it is to find fresh work. Skills
decline and so too does confidence and motivation to look for a job - Discrimination: this can be in terms of age, gender, sexual orientation, race/ethnicity etc. Whilst discrimination
is illegal in the UK, it may still be an important cause of occupational immobility.
