Labour Supply

• What is meant by the labour supply?

  The labour supply is the number of hours people are willing and able to supply at a given wage rate.
• How will the labour supply curve for any industry or occupation look?

  Upward sloping
• What will happen to other workers as wages rise?

  As wages rise, other workers enter this industry attracted by the incentive of higher rewards.
• What does the extent to which a rise in the prevailing wage or salary in an occupation leads to an expansion in the supply of labour depend on?

  The elasticity of labour supply
• What does the labour supply diagram look like?

  DIAGRAM BELOW:

  
• What does W0 on the labour supply diagram represent?

  WO - reflects the minimum pay at which people are willing to work in an occupation (the reservation wage rate).
• What are the key factors affecting industry/occupational labour supply?

  • real wage rate
  • extra pay
  • wages in substitute occupations
  • barriers to entry
  • improvements in the occupational mobility of labour
  • non-monetary characteristics of specific jobs
  • net migration of labour
• How is extra pay a key factor of industry/occupational labour supply?

  E.g. overtime payments, productivity pay, share options.
• How is wages in substitute occupations a key factor of industry/occupational labour supply?

  e.g. increase in the earnings for plumbers and electricians may cause people to switch their jobs.
• How is barriers to entry a key factor of industry/occupational labour supply?

  Artificial limits to an industry‘s labour supply (e.g. minimum entry requirements) can restrict supply and increases wages.
• How is improvements in the occupational mobility of labour a key factor of industry/occupational mobility of labour?

  e.g. as a result of expansion of apprenticeships and other forms of work experience.
• How is non-monetary characteristics of specific jobs a key factor of industry/occupational labour supply?

  e.g. risk, requirement to work anti-social hours, job security, working conditions, opportunities for promotion, chance to live and work overseas, employer-provided in-work training, occupational pension schemes.
• How is net migration of labour a key factor of industry/occupational labour supply?

  E.g. net inward migration boosts the active/available labour supply in many occupations such as skilled professionals working in the NHS.
• If more workers are willing and able to work in a given occupation, then what will happen to the labour supply curve?

  It will shift outwards.
• Show what the diagram will look like if more workers are willing and able to work in a given occupation, causing the labour supply curve to shift outwards:

  DIAGRAM BELOW:

  
• What are the non-monetary factors of industry/occupational labour supply?

  • Job risk and job security
  • Career opportunities
  • anti-social hours
  • Generosity of occupational pensions
  • Strength of vocation
  • Working conditions - terms of contract
  • Quality of in-work training/professional development
  • Living and working overseas
• Give some details on the income and substitution effects of wage rise?

  • Individuals face a choice between hours worked and hours of leisure.
  • The opportunity cost of taking leisure is the value of wages forgone.
  • A change in the wage rate has an income effect and a substitution effect.
• What is the income effect?

  1. Positive income effect: When higher wages cause people to want to work more hours in order to reach a target/desired income.
  2. Negative income effect: When a target income has been reached and people prefer spending more time on leisure rather than earning more income.
• What is the substitution effect?

  • A rise in the real wage increases the opportunity cost of leisure.
  • Therefore, higher wages will always cause people to be incentivised to work longer hours via the substitution effect.
  • But the income effect may work in the opposite direction.
• What does the labour supply diagram look like as a result of the income and substitution effect?

  DIAGRAM BELOW:

  
• What does the income and substitution effect diagram assume?

  This assumes that people have the ability to change the hours that are worked - e.g. they may be on fixed hours or on a zero hours contract.

  People/families on relatively low wages/weekly incomes are likely to have a strongly positive substitution effect - e.g. responding to a higher minimum wage.
• Why is there a labour supply shortage within the NHS?

  • low pay - not keeping up - terms of contract
  • high barriers
  • anti-social hours
  • stress
  • strikes
  • working conditions
  • lack of progress
• How can more labour be provided to the NHS?

  • subsidies
  • apprenticeships —> paramedics
  • vocation/positive campaigns
  • safety/well-being schemes