5.2 Supply of Labour

• Supply of labour


  The number of workers willing and able to work at the current wage rate, multiplied by the number of hours they can work
• Factors affecting the supply of labour


  • The wage rate
  • Demographics of the population
  • Migration
  • Advantages of work
  • Leisure time
  • Trade unions
  • Taxes and benefits
  • Training
• The wage rate


  The upward sloping supply curve shows the proportional relationship between how much the worker is paid and the number of workers willing and able to work
• Demographics of the population


  The more people there who are able and willing to work, the higher the supply of labour. This changes with retirement and school leaving ages, the number of university students and immigration
• Migration


  Migrants are usually of working age, so the supply of labour at all wage rates tends to increase. Migration particularly affects the supply of labour at the lower wage rates, because migrants are usually from economies with average wages lower than the UK minimum wage
• Advantages of work


  If the cost of working is lower, so families can afford childcare, people are more likely to work. If the benefits of working are high, such as holiday entitlements and the potential to be promoted, the supply of labour is likely to increase
• Leisure time


  Leisure is a substitute for work, which is why part-time work and early retirements are attractive options for some people. People have to choose whether to spend their time on work or leisure, influenced by age, the amount of taxes paid, how many dependents the worker has and income from not working
• Trade unions


  They could attract workers to the labour market, because they know their employment rights will be defended. However, the limits on workers, such as limiting their ability to strike, might cause some people to withdraw from the labour market
• Taxes and benefits


  If taxes are too high and benefits are too generous, people might be more inclined to withdraw from the labour market
• Training


  If a lot of training or high qualifications are required for a job, then the supply of labour may fall. However, if the government subsidise training, it is easier for workers to gain the necessary skills for a job, so the supply of labour could increase
• Elasticity of the supply of labour

  The responsiveness of the quantity of labour supplied to a change in the wage rate
• Factors affecting the elasticity of the supply of labour


  • The skills of the workforce
  • Length of training
  • Sense of vocation
  • Time period
• Transfer earnings


  The minimum reward that is needed to keep labour in the current occupation
• Economic rent


  The income earned which is more than transfer earnings i.e. it is the income earned that is above the minimum income required to keep the labour in the occupation
• When supply is perfectly elastic


  The wage they receive is the equivalent of their transfer earnings
• When supply is upward sloping


  The total factor earnings is equal to transfer earnings plus economic rent. The wage where demand equals supply is the equilibrium wage rate, made up of economic rent and transfer earnings