supply of labour

• labour supply to industry/occupation


  LS is no. hours people are willing and able to supply at a given wage rate

  prevailing wage/salary in an occupation -> extension in SL depends on elasticity of labour supply
• higher industry wages assumed to cause expansion of labour supply

  • workers may be attracted into the industry from related occupations
  • workers previously employed in this occupation maybe attracted back e.g. decide to end a period of economic inactivity
• shift in supply of labour (outward shift)


  net inward migration of suitable qualified/experienced workers

  fall in relative pay/earnings in substitute occupations

  lower entry barriers to this particular job such as minimum professional qualifications

  demographic factors -> rise in active labour supply
• labour supply - macro links

  • take home pay after tax and benefits
  • less direct tax -> increase S (higher incentive to work more)
  • less benefits (workers have higher opportunity cost of not working)
  • cost of working -> childcare costs and transport costs
  • childcare vouchers or support -> opportunity cost of working parents decrease
• key factors affecting labour supply to a job

  1. real wage rate on offer in industry itself plus extra pay e.g. overtime payments, productive pay, share options
  2. wages on offer in substitute organisation e.g. higher earnings for plumbers and electricians may cause people to switch their jobs
  3. barrier to entry - artificial limits to an industry's LS can restrict supply and increase wages
  4. improvements in the occupational mobility of labour + stock of human capital e.g. apprenticeships
  5. non-monetary characteristics of specific jobs
  6. net migration of labour
  7. demographic factors
  8. people's preferences
• income + substitution effects of a wage rise


  looks at individual labour supply decision + work-leisure trade off + how this is affected by change in wages

  assumes people can change the hours that are worked but may have a backward bending individual labour supply curve - may choose to work fewer hours when the wage rate rises (ceteris paribus) to increase leisure time

  income effect outweighs substitution effect hence curve goes backwards
• income + substitution effects of a wage rise


  people reduce number of hours worked as they will effectively make the same amount they were making before and be able to increase their leisure time