Factors Influencing the Supply of Labour (AQA A Level Economics)

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Written by: Lorraine

Monetary Considerations that Influence the Supply of Labour

The occupational choices of workers are influenced by a range of monetary and non-monetary factors, which are often held in balance when making decisions about where to work
Monetary factors are financial payments that workers receive for their labour

The Monetary Factors that Influence Occupational Choices

Factor	Explanation
Wages	An agreed amount of money/hour and is calculated directly from the number of hours worked E.g. If a student works in a restaurant for 6 hours, 5 days a week and he/she gets paid $10/hour, the weekly wage is $300 (6x5x$10)
Salary	Employment contracts often state the agreed-upon annual salary the employee will receive This is then divided by 12 and paid monthly (in the USA it is divided by 24 and paid every 2 weeks) The hours worked monthly may vary but the pay received is always the same
Commission	Often used as payment to sales people It is typically a percentage of the value of the transaction involved e.g. estate agents receive 3-7% of the selling price of any property they sell This can motivate employees to maximise sales
Bonus	Money paid in addition to a salary and is usually single annual payment Often paid when the company earns high levels of profits, or as a reward for exceptional worker performance
Piece rate pay	A fixed amount paid to the employee for each completed item produced e.g. 25 Rupees paid to workers in India for each pair of socks they produce
Performance related pay (PRP)	Payment based on how well the worker performs Workers doing exactly the same job may receive different compensation based on different outcomes they achieve
Share options	Payment through the issuing of shares in the company the employee works for This is usually in addition to a monthly salary The monetary value of the shares provided to the employee can be calculated on any given day as: number of shares x share price
Fringe benefits	Benefits provided in addition to the normal salary They can be significant in influencing occupational choices Includes benefits such as such as childcare, free lunches, gym membership, company car

Non-monetary Considerations that Influence the Supply of Labour

Non monetary factors can prove to be powerful motivators in convincing households to supply their labour to the market

Length of training or level of education required: The longer the time period required to study or train for a job, the fewer the number of people who seek employment in that occupation, e.g. it usually takes seven years to become a lawyer
Job security: Employment contracts in different industries have different time periods attached to them. Some contracts are one to four years in length, so they provide high security, e.g financial sector contracts. Others have a short notice period, and the employee can be dismissed with a very short notice period, e.g. 30 days
Job satisfaction: Finding fulfilment in a job role and enjoying work is a significant part of generating job satisfaction. Workers will often change their jobs or careers so as to improve their job satisfaction
Career prospects: Jobs with a defined pathway for promotion (and salary increases) are often more desirable
Level of challenge: Many workers step into an occupation due to the challenge of the role, e.g. firefighters
Status: Some jobs carry a higher level of recognition in society which workers find appealing, e.g doctors, surgeons and lawyers
Work/life balance: Households will be ore likely to offer their labour if they know they will maintain a healthy work/life balance. The rise of 'work from home; and hybrid working has increased labour supply in some markets

The Supply Curve for Labour

The supply curve for labour (S_L) shows the relationship between the wage rate and number of workers willing to work in an occupation
- The S_L shows that more labour supplied as the wage rate increases, which results in an upward sloping supply curve

Diagram: Market Supply Curve for Labour

factors-influencing-the-supply-for-labour-1

There is a positive relationship between supply of labour and wage rate

Diagram analysis

The hourly wage rate increases from W₁to W₂
- There is an incentive for workers to supply more labour from H₁ to H₂
There is a positive relationship between market supply of labour and wage rate
- The higher the wage rate, the higher the supply of labour in that occupation (and vice versa)

Factors that Shift the Supply Curve for Labour

There are numerous factors that influence the amount of labour supplied to a particular industry
- The supply curve is the market supply of labour, not the individual supply of labour

Factors Influencing the Supply of Labour

Training period	Wages in other occupations	Changes in migration policy
Long training periods (and their costs) act as a barrier to entry and exclude many households from offering labour in certain markets	Comparative wage rates in substitute labour markets strongly influence the supply of labour; e.g. it is getting harder to recruit economics teachers as the private sector offers higher wages for their skills	Policies that increase the [popover id="qJhTWXok-ejO4dOy" label="net migration rate "] increase the supply of labour to certain industries, e.g. in 2022, 36% of Singapore's labour force were migrants
Income tax levels	Working conditions	Trade union power
At a certain level, income taxes become a disincentive to households offering their labour. The assumption is that as income tax increases, labour supply decreases - and vice versa	The working conditions & non-wage benefits can act as strong incentive in certain industries e.g. tech companies are well known for their laid-back work environment & wide range of benefits e.g. on-site childcare & restaurants	Trade unions can increase the supply of labour to certain industries as workers consider the benefits of belonging to the union e.g higher wages & a safer working environment
Level of welfare benefits	Social trends
The higher the level of welfare benefits, the lower the incentive for low-skilled labour to offer their labour, and vice versa	Social trends include any major changes within society and can influence the supply of labour to certain industries e.g. work from home during Covid resulted in significant changes to the labour market and not all workers returned to work when economies opened up again

Last updated: 14 October 2024

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