Influences upon supply of labour to different markets Flashcards
Define the labour supply / the supply of labour
The number of hours individuals are willing and able to supply at a given wage rate in a given time period
What determines the shape of the individual labour supply curve (Backward Bending Labour Supply Curve)?
1) Income effect
2) Substituition effect
Define the income effect (+)
Where incomes rises as the wage rate rises, increasing the incentive to work more hours and earn a higher income
Define the income effect (-)
Given the notion that individuals can have target incomes, the income effect can be negative at very high wage rates where workers choose to work to less hours to reach their target income
Define the substituition effect
The substitution effect is always positive, where the opportunity cost of leisure time increases as the wage rate rises, providing an incentive to work (instead of enjoying leisure time)
What (non-wage) factors can affect/shift supply for labour? (Think SIMBAPOV)
1) Substitute’s wage. If the wage in substitute occupations decreases, more workers will be attracted into the market as the earning capacity is greater. The willingness and ability to work increases at the same wage rate, shifting the labour supply curve to the right from S1 to S2.
2) Incentives. If there are non-monetary benefits to the job as well as a suitable wage, workers will be attracted into the market, which increase the willingness for workers to enter a profession, shifting the labour supply curve to the right from S1 to S2.
3) Mobility of Labour. If more workers gain the skills and qualifications necessary to work in a given profession, labour supply will increase or if the workforce generally becomes more educated the willingness and ability of workers to take jobs in a profession increases, shifting the labour supply curve to the right from S1 to S2.
4) Barriers to Entry. If barriers to entry into a profession are high, it becomes more difficult for workers to enter that industry. If to become a hotel receptionist for example, requirements are for individuals to able to speak a variety of languages, experience required is high and computer proficiency expectations are high, several people who want to work in this job may not be able to, shifting the labour supply curve to the left from S1 to S3.
5) Size of the working population. If the size of the working population increases due to immigration of people of a working age for example, the number of people who are willing and able to work in a given profession increases, shifting the labour supply curve to the right from S1 to S2.
6) The ability to work overtime. Overtime opportunities can be very lucrative as an extra earner for workers. Therefore, if such opportunities exist in abundance, the willingness of workers to enter a profession increases, shifting the labour supply curve to the right from S1 to S2.
7) Value of leisure time. If individuals value leisure time less and consider working and earning income to be more important, the willingness and ability to work increases in the labour market, shifting the labour supply curve to the right from S1 to S2.
What is meant by non-monetary benefits?
Rewards that do not involve money. Such perks include job satisfaction and working conditions such as home working, private healthcare, a good pension plan, flexible holiday leave, free lunches etc
(all of which increase the willingness for workers to enter a profession shifting the labour supply curve to the right from S1 to S2. )
Define the elasticity of the labour supply curve
Measures the responsiveness of labour supplied given a change in the wage rate
What factors affect the wage elasticity of supply of labour?
()
1)The pool of potential workers. If the pool of potential workers that could enter the profession is high, as the wage increases, there will be proportionally greater increase in labour supply than the increase in wage, making labour supply wage elastic.
2) Vocational element to the job. Professions that carry a vocational element such as teaching for example will tend to have more wage inelastic supply. This is because it is not a fundamental consideration when deciding to take the job or not. Therefore, if wages fall, supply will decrease but proportionally less than the wage decrease, implying wage inelastic labour supply
3) Length of the training period. This can strongly determine the responsiveness of workers to higher wage rates. If the length of the training period is high to enter a profession, higher wage rates will attract workers to enter, but such a long training period will detract the majority from actually entering. Therefore, as wage rise, labour supply will increase but proportionally less than the wage increase; wage inelastic labour supply.
4) Time. Professions where it takes time to exit the industry can influence workers responsiveness to lower wages or higher wages in other occupations. If wages decrease but notice times needed are long, it can force a worker to remain in the job for a period of time before leaving. In the short run therefore, as wages fall, supply will decrease but proportionately less than the wage decrease implying wage inelastic labour supply.
5) Nature of skills required. This again can strongly determine the responsiveness of workers to higher wage rates. If the nature of skills required is high to enter a profession, higher wage rates will attract workers to enter but such a strict skills requirement will detract the majority from actually entering. Therefore as wages rise, labour supply will increase but proportionately less than the wage increase; wage inelastic labour supply.
What is meant by elastic labour supply?
The proportionate change in labour supply is greater than the change in the wage rate
What is meant by inelastic labour supply?
The proportioante change in labour supply is less than the change in the wage rate
