In this video we’ll focus on the factors that would cause the labour supply curve to
shift for an economy and also more directly for an industry or firm.
Our supply curve of labour is upward sloping and at wage rate W* there are currently Q*
units of labour supplied.
An increase in the supply of labour from SL to SL1 would lead to an increase in the quantity
of labour supplied at the wage rate W*.
Now at W*, Q1 labour is being supplied.
Similarly for a decrease.
A decrease in the supply of labour from SL to SL2 would lead to a reduction in the quantity
supplied at a wage rate of W*.
It would fall from Q* to Q2.
Now that we see what the shift looks like, let’s see why it happens.
First we will look generally at large scale factors that would impact an economy and then
focus more on an industry and firms.
It’s important to remember that an increase in the supply of labour to an economy is most
likely going to lead to an increase in the supply of labour across industries.
Number 1, changes in demographics.
Demographic changes such as an ageing population directly impact the supply of labour in a
country.
As older workers retire, they are not replaced by an equal number of younger workers.
This would reduce the labour supply of a country.
Number two, changes in the retirement age.
An increase in the retirement age would likely increase the labour supply for an economy.
Delaying eligibility for retirement benefits would cause some older workers to continue
working later than they would if the retirement age was unchanged.
Number 3, net migration.
Net migration equals the number of people immigrating to a country minus the number
of people emigrating out of it.
If this figure is positive, labour supply should increase.
If it is negative, labour supply should decrease.
The picture you see on the right is from New York City in the 1890s.
The US has experienced positive net migration for decades as it is perceived as an attractive
country to work and live in.
If that changes in the future, or if other countries are more appealing, US net migration
may decline.
Number 4, taxation and benefits.
Taxation and benefits can incentivize individuals to supply their labour.
Lower incomes taxes may increase the supply of labour as might the reduction of benefis.
Higher income taxes may act as a disincentive to work as might generous government benefits.
Number 5, preferences towards leisure time.
If leisure time tends to become more preferable to work, then the labour supply would decrease.
Conversely, if leisure time becomes less preferable to work, then labour supply would increase.
If the cost of living is rising in a region, then work may become more preferable to leisure.
Now let’s focus more specifically on the industry.
Much of this will apply to firms as well.
First are the non-pecuniary, or non-monetary, benefits of a job.
If non-pecuniary benefits increase for a specific job, then the supply of labour should increase.
Conversely, if they decrease the supply of labour should decrease as well.
Second are barriers to entry.
Barriers to entry in labour supply refer to qualifications, skills, experience and education.
There may be other barriers to entering a profession that limit the number of people
that can enter.
A good example is becoming a teacher.
In many countries are certain level of education is expected and even an additional certification.
If these requirements are lowered, the barriers to entering the profession will fall resulting
in a greater supply of teachers.
Third are trade unions.
The presence of trade unions and their protection of workers’ rights might encourage individuals
to work and thus increase the labour supply within a specific industry.
Fourth is the attractiveness and availability of alternative opportunities.
If opportunities are more appealing in other markets, the supply of labour may fall within
a specific industry.
An example would be domestic workers in LEDC countries taking work in factories instead
due to higher wages and opportunity for progression.
This would reduce the supply of labour for domestic workers.
Now take a chance to test yourself.
Try these five scenarios and see how you do.
You only need to determine whether labour supply would increase or decrease.
Pause the video here and press play when you are ready to check your work.
The answers are shared here, let’s see if you can get them all correct.
If a country experiences negative net migration then they are losing more labour than they’ve
gained.
Labour supply will decrease and shift left.
Second, by making it less attractive to work by raising taxes, the government may cause
labour supply to decrease and shift left.
Third, if the minium age to beging work decreases then the amount of people available for work
will increase, thus raising labour supply and shifting the labour supply curve rightwards.
Fourth, if the non-pecuniary benefits of teaching are reduced, then it is likely that the number
of people willing to be teaches will fall and labour supply in this market will decrease
and shift left.
Finally, if the government decreases benefits to those out of work, they are more likely
to supply their labour and thus increase the supply of labour and shift it rightwards.
By now you should have a clearer picture of what would cause the labour supply curve to
shift for an economy as well as for an industry and firms.
If you have any questions at all, share them below and let’s try and answer them together.
That’s us done for now and I’ll see you in the next one!