supply of labour Flashcards
define the labour supply
the number of hours people are willing and able to supply at a given wage rate
Why is the labour supply upward sloping?
The higher rate the more people for themselves for work
What is the income effect?
As wages rise, income rises and people can afford to work less and consume more leisure
What is the substitution effect?
As wages rise, the opportunity cost of leisure time is higher as more wages are sacrificed for leisure time.
What factors shift market supply for labour?
1) the wage in other industries or occupations
2) the skills needed for the job and the cost of acquiring them
3) the number of people with appropriate qualifications
4) non-pecuniary benefits
5) the demographic structure of the population and the availability of immigrants workers
What causes an outward shift of labour supply?
1) net inward migration - skilled or unskilled?
2) fall in relative pay in substitute occupations
3) low barriers to entry
4) demographic factors
What causes an inward shift of labour supply?
1) brain drain effects as an economy loses skilled workers overseas
2) decline in non-pecuniary rewards
3) fall in relative pay
What are examples of non-pecuniary factors influencing labour supply?
Job risk
Career opportunities
Antisocial hours
Occupational pensions
Strength of vocation
Working conditions
Quality of work training
Living and working overseas
What are the factors affecting wage elasticity of supply of labour?
Nature of skills and qualifications- long and costly training periods with specific skills - inelastic
Vocational nature - more vocational less sensitive
Time- short run in elastic as it can take time for people to respond to changes in relative wages
However, when labour is geographically and occupationally mobile, the labour supply will be relatively elastic even in the short term.
What are transfer earnings?
The minimum payment required to keep a factor of production in its present use- the area undersupply and before the minimum quantity equilibrium
What is economic rent?
Payment received by a factory of production over and above that which would be needed to keep in its present use - the area above supply and below equilibrium wage
What happens to economic rent and transfer earnings when labour supply is perfectly elastic?
There is a limitless supply of labour if wages full or increase or workers leave the market therefore the wage is the minimum therefore only transfer earnings.
What happens to economic rent and transfer earnings when labour supply is perfectly inelastic?
There is a fixed amount of labour supplied no matter what the wage rate is there is no minimum wage amount therefore all economic rent
