Influences upon the supply of labour to different markets

Question 1

State why the labour supply curve is upward sloping

Answer 1

• when wages go up, people realise they can make more money = more people will be willing to work more and the suply of about will increase
• if wages go down, people cannot make as much money working, so fewer apple will be willing to work and the supply of labour will decrease

Question 2

Define elastic labour supply

Answer 2

Workers are responsive to changes in wages
- small percentage increase in wage lead to bigger percentage change in labour supply

Question 3

Define inelastic labour supply

Answer 3

Workers are unresponsive to changes in wages
- bigger percentage in wage will lead to a smaller percentage change in about supply

Question 4

State the 3 factors that determine the elasticity of supply of labour

Answer 4

• skills and qualifications
• unemployment levels
• time

Question 5

Factors affecting elasticity of labour supply: state how skills and qualification affects elasticity of labour supply

Answer 5

in markets where workers require few skills and qualifications, supply will be elastic
- if the firm offers higher wages, it will be easy for workers to become employees (easy to get employed) = quantity supply will increase/ supply will be very responsive to changes in wage - elastic supply

Question 6

Factors affecting elasticity of labour supply: states how unemployment level affect elasticity of supply

Answer 6

• When unemployment is low - there are few people looking for work = supply responds very little (unresponsive), labour supply is inelastic.
• when unemployment is high, labour supply is elastic = supply is responsive

Question 7

Factors affecting elasticity of labour supply: state how time affects elasticity of supply in the short run and long run

Answer 7

• in the short run, if wages increase, supply will be inelastic because there’s very little time to apply and train for the job = workers will not be able to respond as much = wages will be higher
• In the long run, if wages increase, supply will be elastic because there’s lots of time to apply and train for the job = wages will be lower

Question 8

State the 3 factors shifting the labour supply curve

Answer 8

• migration
• income tax and benefits
• non pecuniary benefits

Question 9

Shifts in labour supply: state how migration can increase/ decrease the labour supply curve

Answer 9

migration decreases the labour supply of workers migrating out of the country it
- migration increases labour supply if workers are migrating into the country = increasing labour supply

Question 10

Shifts in labour supply: state how AN INCREASE IN income tax may shift labour supply curve (state counter arguments)

Answer 10

• If income tax increases, supply will shift inwards because higher tax reduces tax home income and this reduces the incentive to work, decreasing supply
  HOWEVER, some workers need to earn a certain amount of income (e.g. to pay off their mortgage each month). The higher tax means they will now have to work more hours to earn the same income (after the tax), so labour supply could actually increase!

Question 11

shifts in labour supply: state how a decrease in income tax may shift the supply curve (state counter arguments)

Answer 11

if Income tax decreases, there will be an increase in the take home income. This increases the incentive to work, increasing the supply of labour
- some workers need to earn only a certain amount of income = the lower tax means these workers now need to work fewer hours to earn the same income after the tax = labour supply could decrease

Question 12

Shifts in supply: what may the effects of income tax be

Answer 12

Ambiguous

Question 13

Shifts in supply: define non pecuniary benefits

Answer 13

Non pecuniary benefits = non monetary benefits - benefits of the job other than the money you are payed e.g. Company holidays, job satisfaction

Question 14

Shifts in supply: state how non pecuniary benfits may cause shifts in supply

Answer 14

• if non peculiarly befits are higher, the job become more appealing = supply shifts out. The higher non pecuniary benefits mean firms can get away with paying lower wages because workers are incentived by the other benefits that the job offers
• Of non pecuniary benefits are low, the job is not very appealing = Supply is lower and wages are higher. Higher wages make up for the low non pecuniary befits

Question 15

Shifts in supply: state how benefits may shift the supply’s curve

Answer 15

• If benefits increase, unemployed workers will have less to spend and some unemployed workers may not have enough to buy basics = will enter the market and supply their labour, increasing labour supply
• If benefits decrease, unemployed workers will be booming and workers may now realise it may be better quitting their jobs and collecting benefits instead of working = labour supply will decrease

Question 16

What is the backward benefits supply curve

Answer 16

When after a certain point, higher wages can lead to a decline in labour supply

Question 17

State the two causes of the backward bending supply curve

Answer 17

• the substitution effect - a higher wage makes work more attractive than leisure. Therefore, in response to higher wages, supply increases because work gives greater remuneration.
• the income effect - a higher wage means workers can achieve a target income by working fewer hours. Therefore, if wages increase, it becomes easier to get enough income through working fewer hours.