3.5.2 Supply of Labour
Edexcel A-Level Economics (9EC0) | Theme 3.5.2
The Supply of Labour Curve
The supply of labour curve shows the number of workers willing and able to work at different wage rates.
For an individual, the supply curve may bend backwards at very high wages because the income effect becomes greater than the substitution effect.
For a market or occupation, the supply curve is usually upward sloping, because higher wages encourage more workers to enter the job.
Factors That Shift the Supply of Labour Curve
A change in any factor other than the wage that affects willingness or ability to work in an occupation shifts the whole supply curve.
| Factor | Effect on Supply of Labour | Reason and Example |
|---|---|---|
| Changes in demographics | Population rises, so supply shifts right | There are more people of working age. |
| Changes in net migration | Net immigration rises, so supply shifts right | More workers enter the labour force. |
| Changes in education and training | Higher skills or qualifications increase supply for skilled jobs, so supply shifts right | More people qualify for the profession, such as more graduates. |
| Changes in barriers to entry | Lower barriers increase supply, so it shifts right | It becomes easier to enter the profession. |
| Changes in other wages or job benefits | Better alternatives reduce supply, so it shifts left | Workers move to better-paid or more attractive jobs. |
| Changes in non-pecuniary benefits | Improved working conditions increase supply | Flexible hours or better job satisfaction make the job more attractive. |
| Changes in income tax or benefits | Lower income tax may increase supply | A higher net wage can raise the incentive to work, although the outcome is complicated by the income effect. |
Labour Mobility and Market Failure
Labour immobility is an important cause of market failure in labour markets because it can lead to structural unemployment and skill shortages.
Geographical Immobility
Geographical immobility means workers cannot move easily to areas where jobs are available.
Causes include high house prices or rent, family ties, lack of information, and regional differences in living costs.
Occupational Immobility
Occupational immobility means workers cannot move easily between jobs or industries because their skills do not match.
Causes include lack of transferable skills, the need for specific training or qualifications, and technological change.
Government Policies to Improve Mobility
- Occupational mobility: subsidised training and retraining schemes, better careers advice, and funding for STEM education
- Geographical mobility: relocation grants, investment in regional infrastructure, and affordable housing schemes
Elasticity of Supply of Labour
The elasticity of supply of labour measures how responsive the quantity of labour supplied is to a change in the wage rate.
- Elastic supply: Quantity supplied changes a lot when wages change. This is more common in low-skilled jobs with few entry barriers.
- Inelastic supply: Quantity supplied changes very little when wages change. This is more common in highly specialised professions such as doctors or pilots.
Exam Preparation
- Draw the upward-sloping supply of labour curve.
- Analyse factors that increase or decrease the supply of labour to a particular occupation.
- Define and distinguish between geographical and occupational immobility.
- Explain how labour immobility leads to labour market failure and structural unemployment.
- Suggest and evaluate government policies to improve labour mobility.