Labour Supply Flashcards
Who supplies labour?
Households
Describe the individual labour supply curve
Backwards bending curve- n shaped BUT facing ➡️wards
Y-axis = wage rate (W)
X-axis = hours of labour (L)
When curve starts bending backwards- point at which worker chooses leisure over working ⬆️ hours
Describe the industry labour supply curve
Upwards sloping
Y-axis = wage rate
X-axis = quantity of labour
Why does the industry labour supply curve bend upwards?
⬆️ ppl offer themselves for work when wage relatively high … workforce in industry ⬆️ exponentially as wage rate ⬆️
What factors can shift the supply curve for labour?
1) Size of the Working Age Population
2) Wages on Offer in Substitute Occupations
3) Barriers to Entry
4) Non-pecuniary Benefits
5) Overtime
How does the size of the working age population affect the industry labour supply curve?
Larger the size of the working age population- ⬆️er participation rate in workforce-> ➡️ward shift
Size of working age population ⬆️ when birth rate ⬆️, death rate ⬇️, and net immigration is positive ➕
How do the wages on offer in substitute occupations affect the industry labour supply curve?
Changes in wage rates between substitute occupations (requiring same skills- e.g. retail and hospitality)-> workers switching occupation
If wages in substitute occupations ⬆️-> industry supply curve shifts ⬅️ (⬇️)
If wages in substitute occupations ⬇️-> industry supply curve shifts ➡️ (⬆️)
How do barriers to entry affect the industry labour supply curve?
Barriers to entry = level of experience and/or qualifications needed to work in industry
If barriers to entry for occupation ⬆️-> labour supply curve shifts ⬅️
If barriers to entry for occupation ⬇️-> labour supply curve shifts ➡️
How do non-pecuniary benefits affect the industry labour supply curve?
Non-pecuniary (non-monetary) benefits- perks involved with job e.g. company cars, staff discount cards etc
⬆️ benefits-> labour supply shifts ➡️
⬇️ benefits-> labour supply shifts ⬅️
How does overtime affect the industry labour supply curve?
Overtime- allows individual to ⬆️ income- financial boost valuable
If overtime available-> ➡️ward shift in industry supply curve
If overtime unavailable-> ⬅️ward shift in industry supply curve
How can market failure in labour supply occur?
1) Geographical immobility of labour
2) Occupational immobility of labour
What is geographical immobility of labour?
When ppl ✖️ relocate to another part of country to take up job opportunities
Why may geographic immobility of labour occur?
1) 🏠 price difference
2) ✖️ want to separate from family and friends
What is the occupational immobility of labour?
Workers ✖️ change jobs due to lack of skills or training
E.g. occurred when 🇬🇧 economy undergone shift from secondary sector employment to tertiary sector employment-> structural unemployment- lack skills to occupy tertiary roles
Why does the individual labour supply curve bend backwards?
As wages ⬆️ opportunity cost of leisure ⬆️ (wage rate seen as opportunity cost of leisure- income that worker sacrifices to enjoy leisure ⏰)- has 2 effects:
1) INITIALLY at low wages workers motivated to work ⬆️ hours (to earn ⬆️)
2) LATER ⬆️er wage brings worker ⬆️er level of real income and encourages consumption of ⬆️ 🚘 and 🧹 (including leisure- assumed leisure normal 🚘)- ALREADY earning a lot … ⬆️ attracted by leisure instead
HENCE why individual labour supply curve is backward bending
