Supply of Labour (Edexcel A Level Economics A)
Revision Note
Written by: Steve Vorster
Reviewed by: Jenna Quinn
Factors Influencing the Supply of Labour
There are numerous factors that influence the amount of labour supplied to a particular industry
Different factors are present in different markets e.g. in the labour market for doctors, the length of time it takes to study to become a doctor limits the supply of doctors. However, in the nursing labour market, the low wages paid to nurses limit the amount of workers who offer their labour as nurses
Factors Influencing The Supply Of Labour
Training period | Wages in other occupations | Changes in migration policy |
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Long training periods 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 net migration rate increase the supply of labour to certain industries e.g. Brexit revealed the extent of foreign labour in the hotel industry in the UK and the withdrawal created a shortage of workers |
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 and non-pay benefits can act as strong incentive in certain industries e.g. tech companies are well known for their laid-back work environment and wide range of benefits e.g. on-site childcare and 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 and a safer working environment |
Level of welfare benefits | Social trends |
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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. Work from home during Covid resulted in significant changes to the labour market once economies opened up again e.g many restaurant workers did not feel safe returning to the jobs they previously had |
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Market Failure in Labour Markets
Market failure occurs in the labour market when workers are unable to easily move between jobs. This is caused by:
Geographical immobility of labour: this occurs when workers find it difficult to move from one geographical area to another in order to secure employment. Barriers to mobility may include family ties, lack of information about possible jobs in different parts of the country, and the challenges in securing/affording accommodation in an unknown location
Occupational mobility of labour: this refers to the ability of a worker to change occupations when they lose a job. If their skill base is transferable between different occupations, then their occupational mobility is high. In reality, many workers are not able to easily transfer between occupations and this is a particular issue when an economy is faced with structural unemployment
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