2 Aims and Objectives Aim Understand the elasticity of labour supply Define elasticity of supply in labour marketsExplain the factors affecting supply to a firm.Analyse the determinants of elasticity of labour supply.Evaluate the ability of firms to influence the elasticity of supply.
3 Starter Changes in the UK/International labour supply. People changing career paths to ones they enjoy!
4 The Supply of Labour to Specific Firms Discuss in groups what would influence your decision to choose employment at one specific firm as apposed to another in the same industry.What factors would you need to consider if deciding to work for House of Fraser or John Lewis?
5 The Supply of Labour to Specific Firms Some factors influence the supply of labour to particular firms:Availability of Training: if a firm offers a higher quantity and quality of training than others, it is likely to attract more workers.Location: Firms based in cities will have a greater pool of labour to select from. Benefit from good transport links.Level of Unemployment: when the level of unemployment is low, there may be skills shortages making it difficult for firms to fill vacanciesOpportunities to work overtime: to earn more money
6 Industry Labour Supply Curve Real Wage RateHigher Wage Rate attracts more labour to the market.W2W1Q1Q2Quantity of Labour
7 Elasticity of SupplyThe responsiveness of the quantity of labour supplied to a change in the real wage rate.Vary from industry to industry.Elasticity of Labour Supply=Percentage change in quantity of labour suppliedPercentage change in wage rate
8 Elasticity Determinants Discuss why each of these factors influences the elasticity of the labour supply. Can you think of any more?Skills and QualificationsLength of Training PeriodSense of VocationTime Period
9 Skills and Qualifications Jobs that require specific skills and qualifications will find it more difficult to attract workers when the real wage rises since there will be few workers with relevant skillsElasticity tends to be lower for skilled jobs than for unskilled
10 Length of Training Period Jobs with long training periods will have low elasticities of labour supply, because workers may be put off by the length of the training period.Even if some workers are attracted by a higher wage rate, it may take several years to complete the required training.
11 Sense of VocationFor teachers and nurses the reward is not solely financial.Supply may not change much to a change in the wage rate.These types of jobs will be largely inelastic.
12 Time PeriodIn the long run supply of labour will tend to be more elastic.This may be because certain occupations require a notice periodHowever football managers do not!
13 Individuals Supply of Labour At high wage levels an increase in the real wage rate will actually lead to a reduction in hours of labour supplied.Can be shown on a backward bending labour supply curve.
14 Backward Bending Labour Supply Curve Effect on hours worked as real wage rate risesReal Wage RateSubstitution Effect + Income Effect -Overall -W2Substitution Effect + Income Effect -Overall +W1Substitution Effect + Income Effect +Overall +Q1Q2Hours Worked per Year
15 Individuals Supply of Labour The effects of a change in the wage rate can be divided into two aspects.Substitution EffectIf wages rise, leisure becomes relatively more expensive (it has a higher opportunity cost).There is a tendency to substitute extra hours of work, replacing hours of leisure.Substitution EffectIncome Effect
16 Individuals Supply of Labour Income EffectIf a workers wages rise the workers income at current hours worked rises.This may encourage more work.Alternatively the individual may now decide they can afford more leisure time whilst maintaining a level of income.Summing the income and substitution effect gives the overall effect (wage effect).
17 Critique the backward bending labour supply curve. Plenary: DiscussionCan firms/ organisations/ governments influence or alter the elasticity of the labour supply in a given industry?Critique the backward bending labour supply curve.