Labour Supply Depends on Monetary and Non-Monetary Factors
Definition
Supply of labour: the number of workers willing and able to work in a particular occupation at each wage rate, influenced by both monetary and non-monetary considerations such as job satisfaction and working conditions.
- The supply of labour to an occupation depends on monetary and non-monetary factors.
- Monetary factors include the wage, overtime and bonuses.
- Non-monetary factors include job satisfaction, conditions and status.
Note
- The labour supply curve to an occupation slopes upward.
- More workers offer their labour as the wage rises.
A Higher Wage and Good Conditions Draw Workers In
- A higher wage attracts more workers into the occupation.
- Good conditions and job satisfaction raise supply at any wage.
- Heavy training or qualification requirements can limit it.
Example
- Some nurses accept lower pay for the satisfaction of the work.
- A dangerous or unpleasant job may need higher pay to attract workers.
Two Jobs at the Same Pay Can Attract Different Supply
- Workers weigh conditions and status, not just the wage.
- Two jobs at the same pay can attract very different supply.
- So a full account of supply must include non-monetary factors.
Cover Both Kinds of Factor
Exam technique
- List monetary and non-monetary factors separately.
- Sketch an upward-sloping supply curve of labour.
Common Mistake
- Do not assume only the wage affects labour supply.
- Non-monetary factors like conditions and satisfaction matter too.
Population, Migration and Tax Shift the Supply Curve
- Several factors shift the whole labour supply curve to an occupation.
- They include population size, net migration, and tax and benefit levels.
- Qualification barriers and conditions in other jobs also matter.
Note
- A shift moves the whole curve, from a change in these determinants.
- A movement along it comes only from a change in the wage.
Population, Migration, Tax and Barriers Are the Main Shift Factors
- A larger population or higher net migration raises labour supply.
- Lower income tax or benefits can raise the incentive to work.
- Fewer qualification barriers open an occupation to more workers.
Example
- Easing the training needed for a trade raises the supply of workers.
- Higher net migration adds workers to many occupations at once.
Only a Wage Change Moves Along the Supply Curve
- A change in the wage is a movement along the supply curve.
- A change in a determinant shifts the whole curve.
- Keeping the two apart is essential for correct diagrams.
Name the Shift Factor
Exam technique
- State which determinant has changed and shift the curve.
- Keep a wage change as a movement along the curve.
Common Mistake
- Do not confuse a shift of the curve with a movement along it.
- Only a wage change moves along the curve; determinants shift it.
Worked Example: Wage Elasticity of Supply of Labour
- An NHS trust raises newly qualified nurse pay from £30,000\pounds 30{,}000£30,000 to £33,000\pounds 33{,}000£33,000 a year, a 10%10\%10% rise.
- Applications to nursing degree courses rise from 20,00020{,}00020,000 to 24,00024{,}00024,000, a 20%20\%20% rise.
- Wage elasticity of labour supply is %ΔQS%ΔW\dfrac{\%\Delta Q_S}{\%\Delta W}%ΔW%ΔQS, giving 20%10%=2.0\dfrac{20\%}{10\%} = 2.010%20%=2.0.
- Since 2.02.02.0 is greater than 111, supply of applicants to nursing is elastic to this pay rise.
Example
- A coefficient of 2.02.02.0 means a 1%1\%1% pay rise draws in a 2%2\%2% increase in applicants, more than proportionate.
- This can happen where entry barriers are moderate and workers can be drawn from related occupations, whereas jobs needing years of specialist training (e.g. consultant doctors) tend to have more inelastic supply in the short run, since the pipeline of qualified applicants cannot expand quickly.
Describing the Labour Supply Diagram
- The vertical axis measures the wage rate (W) and the horizontal axis measures the quantity of labour supplied to the occupation (QL).
- The supply curve, S, slopes upward from left to right: a higher wage draws workers in from other occupations, from economic inactivity, or persuades existing workers to offer more hours.
- A rise in a shift factor, such as higher net migration or fewer qualification barriers, shifts S rightward (outward), so more workers are willing to work at every wage.
- A steeper S curve represents more inelastic supply, common where training takes years; a flatter S curve represents more elastic supply, common where entry is quick and easy.
Case study
- The UK gender pay gap partly reflects labour supply choices: non-monetary factors such as flexible hours and shorter commutes, plus career breaks for childcare, mean women are on average less able or less willing to supply labour to some of the highest-paying, most inflexible roles.
- The NHS relies heavily on net migration and overseas recruitment to shift the supply curve for doctors and nurses rightward, easing shortages that domestic training alone cannot fill quickly, given how long medical and nursing qualifications take.
Self review
- What monetary factors affect labour supply?
- Name three non-monetary factors that affect labour supply.
- Why does the labour supply curve slope up?
- Name three factors that shift the market supply of labour.
- What causes a movement along the supply curve rather than a shift?
- In the nursing worked example, recalculate the wage elasticity of supply if applications had only risen from 20,00020{,}00020,000 to 21,00021{,}00021,000, and say whether supply is now elastic or inelastic.
- Describe, in words, why the labour supply curve to an occupation slopes upward and what makes it steeper or flatter.
