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Supply of labour

Supply of labour 

The supply of labour is the amount people are willing to work for a firm/industry at a given wage. 

Below is a labour supply curve. Notice that it slopes upwards, like the normal supply curve for a while, before bending backwards after a certain point. 



To understand why the curve slopes backwards, we must understand what influences it. 

Income effect
The income effect is initially positive - as wages go up, people work more in order to reach a desired or target income, so the supply curve slopes upwards. However, at a certain point, the income effect turns negative as when people reach that desired income they choose to work less as wages increase, instead spending more time on leisure. 

Substitution effect 
As wages go up, the opportunity cost of not working (leisure) also goes up. This means that every hour not worked costs a worker more at a higher wage. Initially, the substitution effect means that workers will increase the amount they work as their wages increase, hence the upwards sloping curve. 

 The supply of labour is determined by:

 The cost of living
When prices of goods/services are less, the general amount of money people need to survive are less, so they are less likely to settle for lower wages. 

 Levels of unemployment benefits/wages in other jobs/alternatives to work
When people are getting a lot of money from benefits, they are again less likely to settle for low-paid work. The same goes for if there are alternatives or higher paid jobs in other firms. For example, if there is a lot of higher education available, the supply of labour will be diminished. 

 Level of qualification/skill required
The harder it is to qualify for a job and the more skills required, the less the supply will be. For example, there is a greater supply of sales assistants than lawyers, and so lawyers get paid more, because it takes a lot of difficulty and time to become a lawyer, whereas it is very easy to be a sales assistant. 

 Migration and demographic changes
If people are migrating from the country, some are leaving the workforce, which reduces the supply of labour. The same effect occurs if levels of immigration fall, which could be due to something like stronger border control, or Brexit. Similarly if the general population rises or falls, the supply of labour will tend to rise and fall with it. 

 More here 

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