In this video you’ll learn about the elasticity of labour supply and the factors that affect
elasticity.
Using this information we’ll then examine how to draw an elastic and inelastic labour
supply curve.
The elasticity of the supply of labour measures the responsiveness of the quantity supplied
of labour to a change in the wage rate.
If the % change in Qs > the % change in the wage rate, then the supply of labour is said
to be wage elastic.
If the % change in Qs < the % change in the wage rate, then the supply of labour is said
to be wage inelastic.
There are four key factors that affect the elasticity of the supply of labour.
These include skills, education and training, availability of labour and time.
The more skills a job requires the more inelastic the supply of labour will be.
Highly-skilled labour is in lower supply than low-skilled labour.
Workers needs time to develop skills through education and training.
Think specifically about professional athletes.
The skill required for their occupation is so high and requires so much training that
simply increasing the wage rate would not suddenly make a new pool of labour available.
Connected to the previous point is education and training.
Many highly skilled positions require a high degree of education or training.
Doctors must complete a long period of education and training before they are fully licensed
to practice.
If their wages suddenly double, it is unlikely that a proportionate change in the quantity
supplied of doctors will result.
It is also important to factor in the availability of labour.
If there are a high number of people out of work and a firm requires new workers, it may
be able to find them more easily by increasing the wage rate.
If unemployment is very low, then an increase in the wage rate may not have the same effect.
During the Great Depression, people of all skill levels found themselves out of work.
In such situations, it may be easier to recruit workers at higher levels of skills by increasing
the wage rate.
This may not be so feasible in a strongly performing economy.
The final factor is time.
The longer labour has to respond to changes in the wage rate, the more elastic labour
supply will be.
Consider the following.
If wage rates rise suddenly for cardiologists, there will not be a significant increase in
the labour supply market in the short-run.
In the long-run, where labour has had more time to respond to changes in wage rates,
labour supply is likely to be more responsive and thus more elastic.
Now that we’ve understood the factors that would cause supply to be more elastic or inelastic.
Let’s look at the diagrams for both situations.
For the labour market with elastic supply, there is likely to be a more than proportionate
change in the quantity supplied of labour with respect to the proportionate change in
the wage rate.
This kind of labour supply curve could apply to jobs with low skills or jobs that do not
require much training and education.
Such jobs include factory work, window cleaners and waiters and waitresses in restaurants
or in the fast-food industry.
Jobs that require a higher degree of skill, education or training will likely have a supply
curve of labour that looks something like this.
An increase in the wage rate results in a less than proportionate increase in the quantity
supplied of labour.
Even though wages have risen, there will be a limit on the short-run supply of labour
in such fields.
These fields include professional football players, doctors and architects.
Here’s your chance to practice.
Read the following questions and answer them accordingly.
Pause the video here and try to answer them as best you can before moving on.
By increasing the degree of education required, this action will result in the supply of teachers
becoming more inelastic.
The higher requirements will result in fewer individuals becoming teachers and thus less
being available to offer their work in response to increases in the wage rate.
The elasticity of the supply of labour is equal to +25%/ +10% = +2.5
Since the value is greater than 1, the supply of labour can be said to be elastic in this
case.
Due to the high level of training required, it’s unlikely doubling the wage rate will
result in a more than proportionate increase in quantity supplied.
However, this question focuses on the long-run.
Given that labour has a longer time period to respond to the wage rate, the action is
likely to be successful at making the quantity supplied of labour more elastic in the long-run.
Hopefully you’ve successfully answered the final three questions and have a much
better understanding of labour supply elasticity.
If you have any questions, share them below and let’s try to answer them together.
That’s us done for now and I will see you in the next one!