Influences upon the Supply of Labour to

Different Markets
What factors influence your ability and willingness to supply your
time and efforts to the labour market i.e. to work?

Are these factors the same for your parents or older relatives?

E CON 3: B USINESS E CONOMICS AND THE

D ISTRIBUTION OF I NCOME
 W HAT YOU NEED TO KNOW

 a) Factors that influence the supply of labour to a

particular occupation
 b) Market failure in labour markets: the geographical and
occupational mobility and immobility of labour

 You should also understand that the supply of labour to

a particular occupation is influenced by monetary and
non-monetary considerations
 Non-monetary considerations include job satisfaction
and dissatisfaction and the economic welfare derived
from leisure time
 M ONETARY FACTORS INFLUENCING
S UPPLY IN L ABOUR M ARKETS

 Monetary factors are the financial rewards for a

worker supplying their labour to a firm

 The reward for labour is a wage

How are zero-hour
contracts likely to
 The higher the wage the more people will offer
affect the demand their services
for and supply of
labour?  Wage is however related to skills, qualification
and experience

 Workers as economic agents seek to maximise

their earnings
 N ON - MONETARY FACTORS INFLUENCING
S UPPLY IN L ABOUR M ARKETS

 Non-monetary factors are the non-financial

rewards for a worker supplying their labour to a
firm

 These include
 Fringe benefits e.g. company car

 Working conditions e.g. office environment

 Job satisfaction/dissatisfaction

 The economic welfare derived from leisure time

 N ON - MONETARY FACTORS – J OB
S ATISFACTION /D ISSATISFACTION

 Job satisfaction/dissatisfaction is the fulfilment

achieved from working for a firm

 This will vary from worker to worker

 Some workers will seek promotion

 Others might look for a secure job or social

interaction in the workplace
 N ON - MONETARY FACTORS – THE E CONOMIC
W ELFARE D ERIVED FROM L EISURE T IME

Economic welfare for

an individual is the  There is a positive substitution effect between work and
combination of
benefits received from
leisure. Higher wages lead to workers substituting more
work and leisure time. work for leisure
This might include the
financial and non-  There is a negative income effect between work and
financial rewards leisure. Higher wages mean that workers supply less
associated with work
and the satisfaction
work as they can work fewer hours for the same income
achieved from the
individual’s leisure  Workers derive economic welfare from their leisure time
time e.g. spending
time with family and
friends.  They will take this into account when supplying their
labour to a firm
Leisure time has an
opportunity cost due
to the income lost  Higher wages will act as an incentive for a worker to
when not working. supply more of their time to a firm but also mean that
workers don’t have to work as long for the same rewards
 FACTORS INFLUENCING
S UPPLY IN L ABOUR M ARKETS

 Factors influencing the supply of labour include:

 Population migration
 Increase the supply of labour as more people come into a
UK migration country seeking employment
figures a best
guess, say MPs.  Often willing to work for the minimum wage
 EU offers free movement of labour

 Income tax and benefits

 High income tax and high benefits act as a deterrent to the
Net migration supply of labour
'could be
underestimated',
campaigners say. Should the Government be doing more to force
people back to work?
 FACTORS INFLUENCING
S UPPLY IN L ABOUR M ARKETS

 Factors influencing the supply of labour include:

 Government regulations

Minimum wage to  National minimum wage

increase to £6.31.
 An increase in the minimum wage may encourage more
people to supply their services
Trade unions are
organisations that  However, it may also cause a fall in demand
work to protect
the economic
wellbeing of their
 Trade unions
members.
 Improve pay and working conditions attracting more
people to supply labour
 Take industrial action to withdraw the supply of labour
TUC warns of co-  Push wage rates up through negotiations with employers
ordinated strike
action.
 T HE S UPPLY C URVE F OR L ABOUR

The supply curve for Wage rate/MRP

labour (SL) is upward
sloping.
SL
It shows the amount
of work that labour is
willing and able to
supply at any given
wage rate.

An increase in the
wage rate will lead to
more workers offering
themselves for work.

This could be workers

from within the
industry working
more hours or new
workers from outside
of the industry
attracted by the 0
higher wage rates. Quantity of Labour
 T HE B ACKWARD -B ENDING S UPPLY C URVE
HTTPS :// WWW. YOUTUBE . COM / WATCH ? V =V9F T L
D DTA GK

The backward- Wage rate/MRP

bending supply curve
for labour shows how:
SL
1. Higher wages lead
to an increase in
supply at lower
wage rates due to The positive substitution effect is less
the substitution than the negative income effect
effect outweighing
the income effect.
The positive substitution effect is
2. At some point the greater than the negative income effect
income effect
outweighs the
substitution effect
and increased
wages mean that
workers can
actually work less
hours for the same
income. 0 Quantity of Labour
 S HIFTS IN THE S UPPLY C URVE FOR L ABOUR

The supply curve for Wage rate/MRP

labour will shift if
there is a change in
the number of SL1 SL2
workers in the
economy e.g.
immigration.

Supply of labour to
specific industries will
change according to
whether that industry
is seen to be more or
less attractive than
other industries.

0 Quantity of Labour
 E LASTICITY OF S UPPLY OF L ABOUR

Elasticity of supply of Wage rate/MRP

labour measures the
responsiveness of the
quantity supplied of SL is inelastic
labour to a change in
the wage rate.

It can be calculated
as:
% Δ QSL
% Δ WR
SL is elastic
A figure below 1
means that the
elasticity of supply of
labour is inelastic,
above 1 elastic.

0 Quantity of Labour
 D ETERMINANTS OF THE E LASTICITY OF
S UPPLY OF L ABOUR

 Elasticity of supply of the product

 higher supply of the product will increase the elasticity of
supply for labour
 Time
 the longer the time period the more elastic the supply curve
as it is easier to substitute between factors of production and
to change the contracts of workers
 Availability of substitutes
 low skilled labour will be more price elastic
 Barriers to entry
 many professions restrict workers from entering the labour
force e.g. dentistry and accountancy by requiring experience
and qualifications
 10 QUICK QUESTIONS IN 10 MINUTES – ARE
YOU READY ?

1. What is the monetary reward for the supply of labour?

2. State 2 non-monetary factors that influence the supply of labour.
3. Is the substitution effect positive or negative?
4. Is the income effect positive or negative?
5. Draw and label a supply curve.
6. What does MRP stand for?
7. How is the elasticity of supply calculated?
8. State one factor that determines the elasticity of supply?
9. What organisations work to protect the economic wellbeing of its members?
10. What is the opportunity cost of leisure time?

End
 T HE B ACKWARD -B ENDING S UPPLY C URVE

Wage rate/MRP
In pairs:
Place the two SL
text boxes in the
correct place on
the diagram.
One person to
explain the
forward-sloping
section of the
supply curve, the
second person to
explain the
backward-
sloping section.

0 Quantity of Labour

The positive substitution effect is less The positive substitution effect is

than the negative income effect greater than the negative income effect
 TASK

 Identify a profession of your choice, maybe one

you are interested in pursuing in the future
 Carry out some research into the factors
affecting the supply and demand for labour
within this profession
 Prepare a short presentation on your research
findings, use economic theory to underpin your
explanation of the factors affecting the supply
and demand of labour within your chosen
profession