3.5.2 - Supply Of Labour Flashcards
What Is The Key Choice Within The Individual Labour Supply Curve?
(2 Points)
~ Individuals have the choice between whether to work or whether to use that time instead for leisure purposes.
~ One is the opportunity cost of the other.
What Determines The Shape Of The Individual Labour Supply Curve?
(2 Points)
~ Income effect.
~ Substitution effect.
What Is The Income Effect?
(2 Points)
~ As wages go up, incomes will rise at the same time. (Positive income effect).
~ As wages rise people decide to work less because they have a target income. (Negative income effect).
What Is The Substitution Effect?
(2 Points)
~ As wages rise the opportunity cost of leisure time increases as well, always providing an incentive to work.
~ Always positive.
What Does The Individual Labour Supply Curve Look Like & Explain The Impact Of The Substitution Effect & The Income Effect?
(12 Points)
Bottom Quarter:
~ Wages are increasing but at very low wages, individuals respond by working more.
~ Substitution effect is +, providing an incentive to work.
~ Income effect is +, as at low wages individuals respond by working to reach a certain level of income.
~ Wage effect is +, as with higher wages we can see a greater number of hours worked.
Middle Quarter:
~ Real wages are increasing more, meaning that the opportunity cost of leisure time also increases.
~ Substitution effect is +.
~ Income effect is becoming -, the number of hours worked is increasing but the wage at which it is increasing is beginning to slow down, suggesting individuals are reaching a target income.
~ Wage effect is +.
Top Quarter:
~ Curve begins to bend back on itself.
~ Substitution effect is +, as wages are really high as the opportunity cost of leisure is massive.
~ Income effect is -, as the assumption is that individuals have reached their target income and are not willing at higher wages to sacrifice more leisure time.
~ Wage effect is -.
What Does The Labour Supply Curve Look Like For An Industry (Market) & Explain It
(3 Points)
~ Is upward sloping, because as wages keep increasing there is another effect dominates the backward bending nature of the individual supply curve.
~ This is at higher wages those who are trained to do the profession and are currently working in other professions, they will come back once wages increase.
~ The higher wages act as an incentive to work at that given profession.
What Does The Labour Supply Curve Of Individual Firms Depend On?
The kind of labour market that they are operating in.
If A Firm Is Operating In A Perfectly Competitive Labour Market What Does Their Graph Look Like & Explain It?
(2 Points)
~ They have no control over the wage their offer, as they are wage takers.
~ This means that their ACL = MCL = SL.
If A Firm Is A Monopsony What Does Their Graph Look Like & Explain It?
(4 Points)
~ Firm has control over the number of workers it can hire and the wages they provide.
~ Dominant employer of workers in a given industry.
~ But they are constrained by their supply
curve.
MCL Is 2x As Steep Because:
~ They have to pay a higher wage for everybody not just the one additional person.
What Are Factors That Shift The Labour Supply Curve?
(9 Points)
~ Wage on offer in substitute occupation.
~ Barriers to entry. E.g. Skills, qualifications.
~ Non-monetary characteristics of the job. E.g. Health benefits, education benefits, pension, time working.
~ Improvements in occupational mobility of labour. E.g. Increase in skills for a profession.
~ Overtime benefits. E.g. If workers know they will get paid for overtime.
~ Size of the working population. E.g. Immigration and migration.
~ Value of leisure time. E.g. If people value leisure time more or less.
~ Legislation. E.g. School leaving age and retirement age.
~ Working conditions of the job.
What Does The Elasticity Of The Labour Supply Curve Measure?
Responsiveness of labour supplied given a change in the wage rate.
What Are The Determinants Of The Elasticity Of Labour Supplied?
(8 Points)
1) The Nature Of Skills Required In The Job
~ The greater the skills required, the harder it is for those workers for those not in the profession to take jobs in the profession.
~ More specific skill requirements are, the more inelastic supply is. Vice versa.
2) Length Of Time Of The Training Period
~ Longer the training period the less likely those outside are going to take jobs even if the wage rate goes up.
~ Longer training period, is inelastic. Vice versa.
3) Vocational Elements Of Professions
~ If wages fell, (Teachers) are less likely to leave the job as they do not necessarily do the job for monetary benefits.
~ Working in vocational professions, is inelastic. Vice versa.
4) Time Period
~ In the SR, if there is a wage change there is not much of an impact on the quantity supplied of labour, due to people having to give notice and adapt to wage changes, is inelastic.
~ In the LR, is elastic.
