Supply Of Labour

Question 1

The Short Run Labour Supply Curve

Answer 1

Analyses the possible reaction to a change in the wage rate of an individual already employed by a firm
- does not consider other workers so is not the overall labor supply curve for the firm

Question 2

What is the key assumption behind the short run labor supply curve?

Answer 2

individuals cannot change occupations

Question 3

What are the two things an individual chooses to spend their time on?

Answer 3

work and leisure

Question 4

Leisure

Answer 4

• a luxury/normal good
• as income rises, demand for leisure increases

Question 5

Income Effect

Answer 5

As wage rates increase, individuals want to reduce the number of hours that they work as need the leisure time to spend the money that they earn

Question 6

Substitution Effect

Answer 6

As the wage rate rises, individuals are incentived to increase the number of hours that they work as there is an increasing opportunity cost

Question 7

What do both the effects depend upon?

Answer 7

the wage rate

Question 8

Why do individuals experience a conflict over how to spend their time as wages increase?

Answer 8

Individuals want to reduce the hours they work but also increase the number of hours they work

Question 9

What effect is greater at lower wages?

Answer 9

• the substitution effect > the income effect
• have to work more to have more income to spend on leisure
• having leisure time is good but it is not worth it having low quality leisure time
• more likely to work and save the money instead

Question 10

What effect is greater at higher wages?

Answer 10

• the substitution effect < the income effect
• individuals want to spend the money that they earn
• not willing to sacrifice even more leisure time as they reached their target income

Question 11

Do all workers have the same individual labour supply curve?

Answer 11

not all workers have the same supply curve as wage is different for different group of people as younger people more likely to experience the income effect

Question 12

The Long Run Supply Curve

Answer 12

• In the long run, people are able to change occupations
• upwards sloping as a rise in the wage rate will attract more workers
• when a firm offers higher wages, more workers are incentivised to supply their labour

Question 13

Pecuniary (Financial) Factors that determine labour supply

Answer 13

1. Wage Rate

2. Bonuses/Comission
- commission is a percentage of the sales you make
- bonuses are when you reach a target you get additional money

3. Opportunity to work overtime
- Not applicable to zero hour contracts
- Work additional hours to what is stated on their contract

4. Pensions
- when you work some of your income goes to pension schemes
- money is taken out and invested and you get it back when you retire

Question 14

Non-Pecuniary (Non-financial) Factors

Answer 14

• fringe benefits
• job security
• holiday
• status
• pleasantness of job
• convenience
• flexibility of hours
• location
• skills
• quality of training provided
• promotions
• performance of firms

Question 15

Elasticity of Supply of Labour

Answer 15

The responsiveness of quantity supplied of labour to a change in wages
- % change in quantity supplied / % change in wage rate

Question 16

Factors which determine the ESL

Answer 16

1. Qualifications and skills
- for very skilled workers, the supply of labour is inelastic as when wages increase, there is only a small amount of people who arent already working who are able to supply their labour
- already have jobs
- less than proportional increase in the labour supplied

2. Length of training
- if training is very long, they gain more skills so they become more scarce and already likely to have jobs
- even if wages increase, supply of labour increases less than proportionally as you have to wait for training to finish and morfe availabilty of training for other workers
- if training is long, individuals may be busy training and not available to work

3. Mobility of labour
- when wages increase, could be a less than proportional change in supply of labour as people may not want to be where the work is due to bad area

4. Vocationalism
- even if wage rates decreases, quantity supplied of labour may decrease less than proportionally
- some workers are not working for the wage but because they care about their job and like what they are doing
- dont do it for monetary reasons but personal

5. Availability of Workers
- if increase wage rate to find workers, may not be able to find them in a boom as more people become employed so labour pool is smaller
- may need to increase wages even more
- however, in a recession unemployment is high so you dont need to increase wages that much as people are willing to take the first job they find at any wage

6. Time Period
- in the short run, firms may demand more workers who are specialised in capital/technology so wage rate increases
- in the long run, more people may choose to study computing which increases supply