Supply of Labour
- Higher wages usually will encourage a worker to supply more labour because work is more attractive compared to leisure.
- Therefore the supply curve for labour tends to be upwardly sloping.
- However, a worker isn’t just interested in earning money; they are also interested in leisure. ...
What does the labor supply curve represent?
What Does The Labor Supply Curve Represent? In the labor supply curve, there are different wages for different occupations, so it is possible to see how many workers are willing and able to work in each. Students can easily demonstrate that the labor supply curve has a positive slope by showing it in their own hands.
What are the determinants of labor supply?
Supply of labor depends on the following factors:-
- Population and its composition: Larger the population more will be the supply of labor. If the percentage of working population is more, supply of labor is more. ...
- Wage rate: A reasonably high wage rate linked with the cost of living index will bring more supply of labor.
- Working conditions: A comfortable working place, and satisfactory conditions will improve labor supply.
What factors affect the supply of Labor?
Factors that affect the supply of labour include: Pay and remuneration; Working conditions; Human capital, skills, experience and education and training levels; Occupational and geographical mobility of labour; and; The participation rate. The video below explains this in more detail.
What are the factors affecting supply labour?
What factors influence the supply of Labour to a particular occupation?
- Substitution effect of a rise in wages.
- Income effect of a rise in wages.
- The number of qualified people.
- Difficulty of getting qualifications.
- The non-wage benefits of a job.
- The wages and conditions of other jobs.
- Demographic changes and immigration.
Is labor supply curve downward sloping?
We could say that by default, the labor supply curve is upward sloping. This is because people are willing to supply more labor if the wage rate is higher. The wage rate has a positive relationship with the quantity of labor supplied.
Why the shape of Labour supply curve is backward bending?
In economics, a backward-bending supply curve of labour, or backward-bending labour supply curve, is a graphical device showing a situation in which as real wages increase beyond a certain level, people will substitute leisure for paid worktime and so higher wages lead to a decrease in the labour supply and so less ...
Why is the supply curve of labor usually upward sloping?
Like most people, you are far more likely to work more hours at a higher wage than at the lower wage. This is called the substitution effect and explains why the labor supply curve is upward sloping: Workers are willing to work a greater quantity of hours at higher wages than at lower wages.
What does an upward sloping labor supply curve mean?
An upward-sloping labor supply curve means that an increase in the wage induces workers to increase the quantity of labor they supply.
Do you think that individual labour supply curve is backward-bending?
An individual labour supply curve is likely to be positive sloping indicating larger supplies of labour at a higher wage rate. But this is not always so. That means, a worker may be induced to work less when his wage rate tends to rise. Thus, labour supply curve may be backward bending.
Why might an individual's labor supply curve bend backward quizlet?
if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending. a. leisure's higher opportunity cost causes workers to take less leisure and work more.
Which of the following would cause a backward bending supply curve?
Terms in this set (10) Which of the following would cause a backward-bending supply curve? This would occur when the income effect from an increase in the wage becomes larger than the substitution effect. as wages increase the opportunity cost of leisure increases.
Why is the market supply curve of labor positively sloped though individual supply curves are backward-bending beyond a certain wage rate?
Why is the market supply curve of labor positively sloped though individual supply curves are backward-bending beyond a certain wage rate? All the individual supply curves do not bend backward at one particular wage rate. The supply curve of land, in the market for uses of land, is: positively sloped.
How to find supply curve of labour?
The supply curve of labour of a group of individuals or of the whole working force in the economy can be derived by summing up horizontally the supply curves of individuals. It may be noted that the supply curve of labour for the economy as a whole will be upward sloping or backward sloping depending upon whether the relative number of individuals having upward sloping supply curves is greater or less than those having backward sloping supply curves of labour. Further, different individuals will have backward sloping portion in their supply curve at different wage ranges, which creates difficulties in finding the nature of supply curve of the whole work force.
What happens to the total supply curve of labour?
It is generally found that when the wage rate rises from the initially low level to a sufficiently good level, the total supply of labour to the economy as a whole increases (that is, supply curve for the economy as a whole slopes upward to a certain wage rate) and for further increases in the wage rate, the total supply of labour to the economy as a whole decreases (that is, beyond a certain wage rate the total supply curve of labour slopes backward). Thus, the total supply curve of labour for the economy as a whole is generally believed to be the shape depicted in Fig. 33.3 (b).
What is the indifference map in Fig. 33.3?
33.3 such an indifference map is shown which yields a backward sloping supply curve of labour which indicates that the number of hours worked per week decreases as the wage rate rises. AW 1, AW 2, AW 3 and AW 4 are the wage lines when the wages rates are P 1, P 2, P 3 and P 4 respectively.
What happens if the wage rate further rises?
If the wage rate further rises so that the new wage line is AW 3, the individual moves to the point S on indifference curve I 3 and works AL 3 hours which are more than AL 1 or AL 2. Suppose the wage rate further rises so that the wage line is AW 4. With wage line AW 4, the individual is in equilibrium at point T and works AL 4 hours.
What is wage offer curve?
If points Q, R, S and Tare connected, we get what is called wage offer curve which shows the number of hours that an individual offers to work at various wage rates. It should be noted that the wage offer curve, strictly speaking, is not the supply curve of labour though it provides the same information as the supply curve of labour.
What is the slope of the wage line?
The changes in the work-effort or labour supplied by an individual worker due to the changes in the wage rate is illustrated in Fig. 33.1 (a) To begin with, the wage line is AW 1 the slope of the wage line indicates the wage rate per hour.
When the wage rate has risen to a level which is sufficient to yield a sufficient money income for satisfying his?
When the wage rate has risen to a level which is sufficient to yield a sufficient money income for satisfying his fixed minimum wants, then for further increases in wage rate the number of hours worked per week will decrease because now the individual can afford to have more leisure and also earn an income sufficient to meet his minimum wants for goods and services.
What would any one individual's supply curve for labor look like?
What would any one individual’s supply curve for labor look like? One possibility is that over some range of labor hours supplied, the substitution effect will dominate. Because the marginal utility of leisure is relatively low when little labor is supplied (that is, when most time is devoted to leisure), it takes only a small increase in wages to induce the individual to substitute more labor for less leisure. Further, because few hours are worked, the income effect of those wage changes will be small.
Why are supply curves sloping?
It is quite likely that some individuals have backward-bending supply curves for labor—beyond some point, a higher wage induces those individuals to work less, not more. However, supply curves for labor in specific labor markets are generally upward sloping. As wages in one industry rise relative to wages in other industries, workers shift their labor to the relatively high-wage one. An increased quantity of labor is supplied in that industry. While some exceptions have been found, the mobility of labor between competitive labor markets is likely to prevent the total number of hours worked from falling as the wage rate increases. Thus we shall assume that supply curves for labor in particular markets are upward sloping.
How does substitution affect labor supply?
The individual will continue to make the substitution until the two sides of the equation are again equal. For a worker, the substitution effect of a wage increase always reduces the amount of leisure time consumed and increases the amount of time spent working. A higher wage thus produces a positive substitution effect on labor supply.
What is demand for labor?
The demand for labor is one determinant of the equilibrium wage and equilibrium quantity of labor in a perfectly competitive market. The supply of labor, of course, is the other. Economists think of the supply of labor as a problem in which individuals weigh the opportunity cost of various activities that can fill an available amount ...
How many units of utility is $1 worth of leisure?
Then MULe / W equals 20/10, or 2. That means that the individual gains 2 units of utility by spending an additional $1 worth of time on leisure. For a person facing a wage of $10 per hour, $1 worth of leisure would be the equivalent of 6 minutes of leisure time.
How does the demand for leisure play a role in understanding the supply of labor?
Two aspects of the demand for leisure play a key role in understanding the supply of labor. First, leisure is a normal good. All other things unchanged, an increase in income will increase the demand for leisure. Second, the opportunity cost or “price” of leisure is the wage an individual can earn. A worker who can earn $10 per hour gives up $10 in income by consuming an extra hour of leisure. The $10 wage is thus the price of an hour of leisure. A worker who can earn $20 an hour faces a higher price of leisure.
What is the effect of higher wages on the price of leisure?
The higher wage increases the price of leisure. We saw in the chapter on consumer choice that consumers substitute more of other goods for a good whose price has risen. The substitution effect of a higher wage causes the consumer to substitute labor for leisure.
Why is the supply curve for labour upwardly sloping?
A look at factors that determine an individuals supply of labour and the market supply of labour. Higher wages usually will encourage a worker to supply more labour because work is more attractive compared to leisure. Therefore the supply curve for labour tends to be upwardly sloping.
What are the factors that influence the supply of labour?
Two factors that influence a workers supply of labour. 1. Substitution effect of a rise in wages. With higher wages, workers will give greater value to working than leisure. With work more profitable, there is a higher opportunity cost of not working. The substitution effect causes more hours to be worked as wages rise.
How does immigration affect demand for labour?
Effect of increase in supply and demand for labour. If immigration led to an increase in the supply of labour (more workers) then wages would initially fall. However, net migration would also lead to increase in demand for labour because the new workers create additional demand in the economy.
What would happen if the supply of economics teachers rose?
If it is difficult to get particular qualifications, supply will be inelastic. For example, even if wages of economics teachers rose, the supply would be quite inelastic – to become qualified would take several years.
How are wages determined in a competitive labour market?
In a perfectly competitive labour market, wages are determined by supply and demand (We). For an individual firm, the supply of labour is perfectly elastic. They are wage takers and employ workers at the market wage of We.
What happens if many jobs in a local area are considered unpleasant?
If many jobs in a local area are considered unpleasant – e.g. fruit pickers, then the supply of alternatives will be relatively higher.
What happens if supply is more inelastic?
If supply is more inelastic, this tends to lead to higher wages. (Supply 1) leads to W2
What Is a Supply Curve?
The supply curve is a graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period. In a typical illustration, the price will appear on the left vertical axis, while the quantity supplied will appear on the horizontal axis.
How does a supply curve work?
The supply curve will move upward from left to right, which expresses the law of supply: As the price of a given commodity increases, the quantity supplied increases (all else being equal). Note that this formulation implies that price is the independent variable, and quantity the dependent variable.
What is supply in economics?
In everyday usage, this might be called the "supply," but in economic theory, "supply" refers to the curve shown above, denoting the relationship between quantity supplied and price per unit.
What is the supply curve of a 50% increase in soybean prices?
On the other hand, if a 50% rise in soybean prices only increases the quantity supplied by 10 percent, the supply elasticity is 0.2. The supply curve is shallower (closer to horizontal) for products with more elastic supply and steeper (closer to vertical) for products with less elastic supply.
What happens to soybean supply curve?
If a new technology, such as a pest-resistant seed, increases yields, the supply curve will shift right (S 2 ). If the future price of soybeans is higher than the current price, the supply will temporarily shift to the left (S 3 ), since producers have an incentive to wait to sell.
What happens to the supply curve when price remains the same?
In this scenario, more soybeans will be produced even if the price remains the same, meaning that the supply curve itself shifts to the right (S 2) in the graph below. In other words, supply will increase.
What factors can cause a shift in the supply curve?
Other factors can also cause changes in the supply curve, such as technology. Any advances that increase production and make it more efficient can cause a shift to the right in the supply curve. Similarly, market expectations and the number of sellers (or competition) can affect the curve as well.
