The Labour Supply (Ls)

Transcription

1 The Labour Supply A2 Economics The Labour Supply (Ls) Defining the labour supply The total number of hours that labour is willing and able to supply at a given wage rate The total number of workers willing and able to work in a given occupation or industry for a given wage The labour force is defined as the number of people either in work or actively seeking paid employment and available to start work. 1

2 Whole economy labour supply Resident population of the UK GBP (billions) billions 2

3 Factors affecting labour supply Demographics Naturalrateof rate changeof population Changes to size of population of working age caused by changes in demographic structure Changes in activity rates % of population of working age looking for work Economically active v inactive workers Net migration of labour Has been strongly positive for the UK in recent years but scale of inward migration has slowed UK population aged 16 and over population in millions (billions) billions 3

4 Labour supply and population Choice between economic activity / inactivity Impact of tax and benefits system Poverty traps Unemployment traps Effectiveness of training and education Retirement ages and pension provision Changing social attitudes to work and leisure Flexibility of employment contracts 4

5 The Poverty Trap Disincentives to work Net financial return to working is low Creates a dependency culture on welfare Causes Liability to pay higher tax Loss of means tested welfare benefits Additional work related costs Trap means that the effective marginal tax rate is highest for lower income people The economically inactive and the hidden unemployed 5

6 Measures to reduce economic inactivity Tighter eligibility for welfare payments Fallin the relativevalueofvalue welfare benefits Better access to and funding of child care to make it more affordable Investment in education and training (human capital) Working Families Tax Credits and Children s Tax Credits National Minimum Wage A mixture of the carrot and the stick Labour supply to individual occupations Factors affecting the market supply of labour to different industries 6

7 Market (industry) supply of labour Real wage on offer in the industry itself Potential for wage drift Earnings available in alternative jobs Pay / earnings differentials Public v private sector jobs (teaching, dentistry) Barriers to entry in certain occupations Trade union influences (old closed shop agreements) Professional organisations Minimum entry requirements for some jobs Barriers create artificial scarcity of labour supply Availability of migrant labour Non pecuniary characteristics of a job Non pecuniary aspects of work Health risks Opportunitiesfor careerprogression Travel Benefits in kind Pension provision (final salary scheme etc) Job status Diversity of work Some of these factors boost the industry labour supply others tend to restrict it 7

8 Elasticity of labour supply Wage Market supply of labour for relatively low-skilled jobs examples.. LS1 Quantity of labour Elasticity of labour supply Wage Market supply of labour for relatively high skilled jobs with restricted entry LS2 Quantity of labour 8

9 Reservation wage Wage Minimum wage rate / salary level required to attract workers into an industry the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job Quantity of labour The individual labour supply curve Built around the principle of the work leisure trade off If wages are higher, will people supply more of their time to work? What are the incentives? Consider the opportunity cost of not working Do target incomes matter? Is the individual labour supply curve likely to be linear as wages change? 9

10 Possible labour supply curves Wage Hours worked Can the supply curve slope backwards? Wage Hours worked 10

11 Income and substitution effects from higher wages Income effects: Takes less time working to achieve the same amount of income Income elasticity of demand for leisure time Will some people cut back on their hours having reached a satisfactory target income? Income and substitution effects from higher wages Income effects: Takes less time working to achieve the same amount of income Does leisure have a high income elasticity of demand? Will some people cut back on their hours having reached a satisfactory target income? Substitution effects: The opportunity costofof taking leisure time has risen (why?) The returns from working have increased An incentive to work longer hours? 11

12 New York Taxi example These taxi drivers lease their cabs for a fixed period (e.g. A month or year). They are responsible for fuel and maintenance and keep 100% of their fare income after paying their fixed costs) What happens when the minimum fare for taxi drivers is increased? Assume that taxi drivers set an earnings target over some short time horizon Tutor2u Keep up to date with economics, p p resources, quizzes and worksheets for your economics course. 12