Labour Supply

And its determinants

Objectives
Know and describe what labour supply is, its determinants and why can be
elastic

Understand how to analyse the role of education and training on the labour
supply

To be able to evaluate the role of education and training in improving the

quality of labour supply

What is Labour Supply?

The labour supply refers to the total number of hours that labour is willing and able to
supply at a given wage rate It is the number of workers willing and able to work in a particular job or industry for a given wage The labour supply curve for an industry or occupation will be upward sloping This is because, as wages rise, other workers enter this industry attracted by the incentive of higher rewards. They may have moved from other occupations or they may not have previously held a job, such as housewives or the unemployed The extent to which a rise in the prevailing wage or salary in an occupation leads to expansion in the supply of labour depends on the elasticity of labour supply

What determines labour supply?

Wages Qualifications/Skills Cost of living Population Age Immobility of Labour Geographical Mobility Physical Capabilities Other Priorities (maternity leave) Fashion Time Opportunity Cost of Work

Labour Supply Graph

Wage Level S

W1

W
D1

D
0 Q1 Q Quantity of Labour

How can education and training effect the supply of labour

Access to higher paid jobs Higher MPP more valuable to firms Increased efficiency Increased human capital (skills/experience/training) Could decrease supply of labour in obsolete fields Over qualification fatigue, boredom, repetition Labour supply could be more elastic Increased productivity Lower skilled positions wont be filled

How can firms retain their supply of labour?

Transfer earning - The minimum payment required to keep a factor of
production, labour, in its present use. The opportunity cost of its present use.

Economic Rate - a payment received by a factor of production over and

above what would be needed to keep it in its present use.

What benefits could a hospital get employing a senior doctor as well as junior doctors?
While working, the junior doctor well receive further training and become
better at their job increasing their MPP. Because they are a junior they will not need to be paid as much as the senior doctor. For this reason transfer earnings will apply to the junior.

The senior doctor will be providing training as well as doing his usual job as
a senior doctor. For their reason they are likely to be paid more than the average for their role. For this reason economic rent would apply to the senior doctor.

Interpreting Transfer earning and economic rent

Wage Level S

Transfer Earning

Economic rent
D 0

Quantity of Labour

 Elastic Waiter Inelastic Doctor

Discuss whether providing education and training is the best method of reducing youth unemployment