4.2 The supply of labour

Question 1

What monetary factors influence the supply of labour?

Answer 1

Wages:

• The higher the wage, the more likely workers are to willing to supply their labour
• Workers as economic agents seek to maximise their earnings

Question 2

What factors can influence the wage rate?

Answer 2

Qualifications
Skills
Experience

Question 3

What non monetary factors influence the supply of labour?

Answer 3

• Fringe benefits (i.e company car)
• Working conditions (health and safety, working hours)
• Job satisfaction/dissatisfaction - what workers value in their role will vary (i.e promotion/social time)
• The economic welfare gained by leisure time

Question 4

What is the substitution effect?

Answer 4

A higher hourly wage rate makes work more attractive than leisure, so workers substitute leisure for labour.

Or

Wages Increase
Work time increases

Question 5

What is the income effect?

Answer 5

An increase in the hourly wage rate means higher real income and if leisure is a normal good, the qty of leisure demanded goes up and qty of labour supplied down.

Or

Wages increase
Work Time decreases

Question 6

Why does leisure time have an opportunity cost?

Answer 6

Leisure time has an opportunity cost: the income missed out on when not at work.

Question 7

What factors cause the labour supply curve to shift?

Answer 7

• A change in monetary rewards
• A change in non monetary rewards
• A change in attitude toward the job
• How highly people value leisure time
• Population changes
• Changes in expectations

Question 8

How do you calculate the elasticity of supply for labour?

Answer 8

% Δ QSL
/
% Δ WR

Question 9

What are the determinants for the elasticity of supply for labour?

Answer 9

• Elasticity of supply for the product
• Time
• Availability of substitutes
• Barriers to entry/exit