Labor Supply Curve

12 Key excerpts on "Labor Supply Curve"

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  Economics

  • William Boyes, Michael Melvin(Authors)
  • 2015(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Not everyone has the same trade-offs between labor and leisure; not all offer to work at the same wage rate; not all want the same kind of job. As the wage rate rises, some people who choose not to participate in the labor market at lower wages are induced to offer their services for employment at a higher wage. The labor market supply curve slopes up because the number of people who are both willing and able to work rises as the wage rate rises and because the number of hours that each person is willing and able to work rises as the wage rate rises, at least up to some high wage rate. 30-1c Equilibrium The labor market consists of the labor demand and Labor Supply Curves. We have just dis-cussed labor supply. Labor demand is based on the firm’s marginal-revenue-product curves, as discussed in the previous chapter. The marginal revenue product is the value that the individual employee contributes to the firm. The term productivity typically refers to all workers together and means the output per worker or average product. If we talk about the productivity of an individual person, then we are referring to the marginal product, the addi-tional product provided by that individual worker. The intersection of the labor demand and Labor Supply Curves determines the equilibrium wage, W e , and the quantity of hours people work at this equilibrium wage, Q e , as shown in Figure 2. FIGURE 2 Labor Market Equilibrium W e Wage Rate per Hour (dollars) Q e S D Quantit y (number of hours) If all workers are the same to all firms—that is, if a firm does not care whether it hires Roberto, Renee, or Ryan—and if all firms and jobs are the same to workers—that is, if a worker does not care whether a job is with IBM or Ted’s Hot Dog Stand—then one demand curve and one supply curve define the labor market. The intersection of the two curves is the labor market equilibrium at which the wage rate is determined.

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  Labor Markets and Employment Relationships

  A Comprehensive Approach

  • Joyce Jacobsen, Gilbert Skillman(Authors)
  • 2008(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  In most empirical applications of the theory, however, labor economists are interested in the labor supply behavior of particu-lar groups of people, defined for example by demographic category (race, gender, age, and so on) or the particular type of labor being supplied. Thus it is impor-tant to consider how aggregate supply curves are derived from the individual supply curves of the households constituting the group under study. This is most readily done in the case that the members of the group in ques-tion are easily defined, either through direct observation or indirectly due to the nature of economic circumstance under consideration. An example of the latter might be the set of all workers currently supplying a certain type of labor, or the set of women currently in the labor force within a given economy. In that case, to derive the corresponding aggregate supply curve for the indicated group, one simply adds together the Labor Supply Curves for all individuals in the group. Visually speaking, in terms of the standard labor supply graph, this means adding individual supply curves horizontally , or summing quantities supplied corre-sponding to each possible value of the market wage rate. This procedure is illus-trated in figure 1.9. Note that it is therefore not possible to determine in general what would be the slope of the aggregate Labor Supply Curve thus derived, since it would depend on the slopes of individual curves. However, a more definitive statement about the slope of aggregate labor supply can be made if the number of households joining the group under study (for LABOR SUPPLY 45 instance, the group of individuals supplying labor in the market for a certain type of labor) is an increasing function of the relevant wage rate. For example, it might be that people are willing to commute, or even migrate, longer distances to join a given geographically defined labor market at wage rates sufficiently higher than the going level.

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  Microeconomics

  A Contemporary Introduction

  • William A. McEachern(Author)
  • 2016(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  And graffiti artists spend hours defacing property while risking arrest for whatever kicks they get from leaving their marks. As with the taste for goods and services, economists do not try to explain how work preferences develop. They simply argue that your preferences are relatively stable and, at a given wage, you supply more labor to jobs you like. Based on taste, workers seek jobs in a way that tends to minimize the disutility of work. This is not to say that everyone ends up in his or her most preferred position. The transaction costs of job information and of changing jobs may prevent some matchups that might otherwise seem desirable. But in the long run, people tend to find jobs that suit them. We are not likely to find tour guides who hate to travel, zookeepers who are allergic to animals, or garage mechanics who hate getting their hands dirty. 12-1d Market Supply of Labor In the previous section, we considered those factors, both monetary and nonmonetary, that influence individual labor supply. The supply of labor to a particular market is the horizontal sum of all the individual supply curves. The horizontal sum at each particular wage is found by adding the quantities supplied by each worker. If an individual supply curve of labor bends backward, does this mean that the market supply curve for labor also bends backward? Not necessarily. Because different individuals have different op-portunity costs and different tastes for work, the bend in the supply curve occurs at dif-ferent wages for different individuals. And, for some individuals, the Labor Supply Curve may not bend backward over the realistic range of wages. Exhibit 2 shows how just three individual Labor Supply Curves sum to yield a market supply curve that slopes upward.

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  Money, Enterprise and Income Distribution

  Towards a macroeconomic theory of capitalism

  • John Smithin(Author)
  • 2008(Publication Date)
  • Routledge

    (Publisher)

  A convenient term for this sort of construct would be a “wage curve” (as opposed to a “Labor Supply Curve”), and, in fact, Blanchflower and Oswald (1994), for example, have already introduced this terminology, in estimating what they call a “wage curve” – in their case a relationship between wages and unemployment – for the UK 1973–90. While recognizing that those authors have argued that their own statistical work is consistent with models based on the usual sort of optimization procedures, 2 we will appropriate the same term here for any relationship that purports to determine the aggregate real wage rate as the dependent variable, rather than the supply of labor itself, including those relationships based mainly on macroeconomic and institutional factors. As one example, in the context of the static labor demand/supply type diagrams that we have been dealing with above, perhaps it could be argued there is an upward sloping wage curve existing inside the choice-theoretic Labor Supply Curve, as is shown in Figure 7.6 for example. This wage curve still slopes upward, and this might be on the argument, for example, that in the overall macroeconomic or socioeconomic context, an increase in the overall level of employment, implying reductions in unemployment, will tend to increase the bargaining power of labor (e.g. by strengthening the unions, or just making employers less resistant to increasing wages), and hence real wages

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  Economics

  A Contemporary Introduction

  • William A. McEachern(Author)
  • 2016(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  And graffiti artists spend hours defacing property while risking arrest for whatever kicks they get from leaving their marks. As with the taste for goods and services, economists do not try to explain how work preferences develop. They simply argue that your preferences are relatively stable and, at a given wage, you supply more labor to jobs you like. Based on taste, workers seek jobs in a way that tends to minimize the disutility of work. This is not to say that everyone ends up in his or her most preferred position. The transaction costs of job information and of changing jobs may prevent some matchups that might otherwise seem desirable. But in the long run, people tend to find jobs that suit them. We are not likely to find tour guides who hate to travel, zookeepers who are allergic to animals, or garage mechanics who hate getting their hands dirty. 12-1d Market Supply of Labor In the previous section, we considered those factors, both monetary and nonmonetary, that influence individual labor supply. The supply of labor to a particular market is the horizontal sum of all the individual supply curves. The horizontal sum at each particular wage is found by adding the quantities supplied by each worker. If an individual supply curve of labor bends backward, does this mean that the market supply curve for labor also bends backward? Not necessarily. Because different individuals have different op- portunity costs and different tastes for work, the bend in the supply curve occurs at dif- ferent wages for different individuals. And, for some individuals, the Labor Supply Curve may not bend backward over the realistic range of wages. Exhibit 2 shows how just three individual Labor Supply Curves sum to yield a market supply curve that slopes upward.

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  Price Theory and Applications

  • Steven Landsburg(Author)
  • 2013(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  At any given wage, we read each individual ’ s quantity supplied from his own supply curve; then we add these quantities to get the quantity of labor supplied to the market. There is also a market demand for labor, which we know from Chapter 15 coin-cides with the MRP L curve. Putting the supply and demand curves together, we can find the point of labor market equilibrium. Now we can use the machinery of supply and demand to analyze the effects of some simple changes. To carry out the exercises of this section, we assume that the Labor Supply Curve is upward sloping. Changes in Nonlabor Income Part A of Exhibit 16.8 illustrates what happens when a single worker experiences an increase in nonlabor income, such as an unexpected inheritance. The labor market (depicted in the left-hand panel) is in equilibrium at the wage W . The individual worker, who is a competitive supplier in the labor market, then faces a flat demand curve for his services at that wage. His initial supply curve is s in the right-hand panel, and he supplies L units of labor. 1 E. Prescott, “ Why Do Americans Work So Much More Than Europeans?, ” Federal Reserve Bank of Minneapolis Quarterly Review 28, July 2004. 2 A. Alesina, E. Glaeser, and B. Sacerdote, “ Work and Leisure in the U.S. and Europe: Why So Different?, ” Harvard Institute of Economic Research Discussion Papers 2068, April 2005. THE MARKET FOR LABOR 507 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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  Modern Labor Economics

  Theory and Public Policy

  • Ronald G. Ehrenberg, Robert S. Smith(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  same. Thus, the choice would have to be made on the basis of compensation alone. If a firm were to lower its wage offers below those of other firms, it would lose all its applicants. The horizontal supply curve is, therefore, a reflection of supply decisions made among alternatives that are perfect substitutes for each other.

  We have argued that firms wishing to hire paralegals must pay the going wage or lose all applicants. While this may seem unrealistic, it is not a bad proposition with which to start our analysis. If a firm offers jobs comparable to those offered by other firms but at a lower level of pay, it might be able to attract a few applicants of the quality it desires because a few people will be unaware of compensation elsewhere. Over time, however, knowledge of the firm’s poor pay would become more widespread, and the firm would have to rely solely on less-qualified people to fill its jobs. It could secure quality employees at below-average pay only if it offered noncomparable jobs (more pleasant working conditions, longer paid vacations, and so forth). This factor in labor supply will be discussed in chapter 8 . For now, we will assume that individual firms, like individual workers, are wage takers ; that is, the wages they pay to their workers must be pretty close to the going wage if they face competition in the labor market. Neither individual workers nor firms can set a wage much different from the going wage and still hope to transact. (Exceptions to this elementary proposition will be analyzed in chapter 5 .)

  The Determination of the Wage

  The wage that prevails in a particular labor market is heavily influenced by labor supply and demand, regardless of whether the market involves a labor union or other nonmarket forces. In this section, we analyze how the interplay of supply and demand in the labor market affects wages.

  The Market-Clearing Wage Recall that the market demand curve indicates how many workers employers would want at each wage rate, holding capital prices and the product demand schedule constant. The market supply curve indicates how many workers would enter the market at each wage level, holding the wages in other occupations constant. These curves can be placed on the same graph to reveal some interesting information, as shown in Figure 2.12

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  Modern Labour Economics

  • Peter Sloane, Paul Latreille, Nigel O'Leary(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Chapter 2 The Labour Supply Curve

  Learning Outcomes

  At the end of this chapter, readers should have an understanding of:

  • The multi-dimensional nature of labour supply;
  • The distinction between income and substitution effects and how a backward-sloping labour supply curve is possible;
  • How family income, taxes and overtime result in non-linearities in the labour supply function;
  • The effect of the standard work-week on supply choices of individual workers;
  • Why employers might prefer to have lower standard wage rates and higher overtime wage premium payments;
  • What determines the incidence of part-time work, overtime working, absence rates and double-jobbing.

  Introduction

  We have already examined the decision whether or not to be a member of the labour force in Chapter 1 , which focused on labour force participation, while the investment decision over whether to increase the qualifications and skills possessed by the individual is considered in Chapter 3 . In this chapter, we focus more on the supply of hours and the constraints facing workers in optimising their combination of earnings and hours in particular jobs.

  Labour supply is complicated by the fact that it is multi-dimensional. Effective supply may be varied by changes in the number of workers, changes in the number of hours worked by a given labour force, and changes in the intensity of work, which may be influenced, among other things, by the input of effort from the worker. Thus, not only are workers themselves heterogeneous, but also units of labour input offered by the same workers may vary over time as the nature of work or incentives alter, or through physiological factors such as settling in or fatigue. The theory of labour force participation has dealt with the binary choice of whether to work in the labour market or not, so that here we are predominantly concerned with the intensity with which workers offer their services in terms of duration, the level of commitment being the concern of Chapter 10

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  A Theory of the Producer-Consumer Household

  The New Keynesian Perspective on Self-Employment

  • Yoshihiro Maruyama, Tadashi Sonoda(Authors)
  • 2011(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Thus, the household supply of labor is rendered more elastic or responsive to the change in wage rate by the effect of its family employment than that of a corresponding worker-consumer household which has no family firm. What consequences this difference produce to the household supply of labor will be examined in the first place. a Responses to the change in rate of wage or the supply of labor function Equations (30.1). (30.3) and (30.6) in section 1.3 of the first chapter show the following results. L s = L ∗ s − L = (α + βk)t − (α + β)e − L. ∂e ∂w = ∂e ∂w ∗ + L s ∂e ∂y , ∂L ∗ s ∂w = −(α + β) ∂e ∂w , (7.1) ∂L ∂w = ∂L ∂w ∗ < 0, (7.2) ∂L s ∂w = ∂L ∗ s ∂w − ∂L ∂w > ∂L ∗ s ∂w . (7.3) A detailed analysis of the response of the supply of labor gives the following results. (i) L s ≤ 0, ∂L s ∂w > 0, (7.4) (ii) L s > 0, ∂L s ∂w > 0 if |η w∗ (L)| ≥ L s L , (7.5) ∂L s ∂w 0 if |η w∗ (L)| < L s L . The Structure of Labor Supply 155 b The graphic representation of labor supply The family employment or the employment of labor by its family firm is represented by the value of marginal product of labor curve pcF ∗ 1 as in Chapter 1, but is labeled as L for the sake of simplicity. On the other hand, the family supply of labor or the supply of labor by its family members is represented by the supply wage rate curve pR as in the same chapter but is labeled as L ∗ s for the sake of simplicity. The two curves intersect at the wage rate equal to w 0 , which may be referred to as the self-sufficiency wage rate. At wage rates above this rate the family supply of labor exceeds the family employment and its excess supply of labor will be provided to other producing units. Contrastingly, at lower rates the family employ- ment exceeds the family supply of labor and its excess demand for labor should be filled by the supply of labor from other households, as shown in Figure 5.1a.

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  Labor and the Economy

  • Howard M. Wachtel(Author)
  • 2013(Publication Date)
  • Academic Press

    (Publisher)

  Whether the supply curve has its normal upward slope or is backward bending depends on which of these two forces is greater. If the substitution effect prevails, the supply curve will slope upward; if the income effect prevails, it will bend backward. Although the possibility of a back-ward-bending supply curve exists, and there are examples of it operating in real economic situations, neoclassical economics proceeds by positing a normal up-ward-sloping supply curve over the range of wage rates being considered in the short term. Aside from deciding upon how many hours each individual in the house-hold will offer to the labor market, the household also decides how many in-dividuals will seek work at all and what level of skills, education, and training each person will bring to the labor market. The labor force participation rate measures the number of individuals who participate in the labor market relative to an eligible population base. Human capital is the term given to the investments made by individuals, firms, and the society as a whole in the quality of the labor force. In the past several decades there have been important changes in the demographics of labor force participation rates. Participation rates have fallen for men and risen for women. Older people of both sexes have reduced their participation in the labor force over the past 30 years, although the rate of decline is greater for men. Participation rates for black men have diverged from those for white men, leading to a wider gap in black and white male participation rates. On the other hand, rates have converged for black and white women, the white female rate growing to close the gap with what has always been a higher labor force participation rate for black women. These demographic trends reflect the fact that more women are now in the labor force due to economic necessity, changes in social mores, and an increase in female-headed families.

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  Foundations of Macroeconomics

  Its Theory and Policy

  • Frederick S. Brooman(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  To the extent that firms try to increase output to meet increased real demand (since even at full employment an individual firm can increase output by drawing resources away from others), their attempts to hire more labor for the purpose will create an excess of demand over supply in the labor market, and this will cause the money wage w to rise. Alternatively, if firms’ initial reaction to the rise in real demand is to raise prices rather than output, the consequent fall in real wages may cause the supply of labor to fall 13 below the level needed to sustain the current level of output, so that money wages must be increased to restore real wages to their original level. In addition, labor unions can be expected to react to the rise in prices by insisting on compensating increases in money wages to maintain their members’ living standards. Since the supply curve s (Q, w̄) shows the money value of each level of output (Q) when it is multiplied by its supply price w̄ /MPL, the rise in w will now increase the value of s associated with each level of Q ; the curve s (Q, w̄) will therefore move vertically upward in proportion to the increase in w, continuing to move as long as w goes on rising. With money wages and prices rising at the same rate, there will be no reduction in real wages and therefore no redistribution effect to restrain the upward movement of the aggregate demand curve. Both curves will be shifting upward simultaneously, as shown in Figure 10.4. It will be recalled that when the demand curve d (Q, p) was introduced (p. 239), it was defined for a particular fixed level of the money wage rate w̄), as was the supply curve. As the money wage rate rises, however, the supply curve shifts upward, and the “supply price” associated with each level of output increases. But this same “supply price” enters the functional relationship for demand – i.e., the p in d(Q, p) – and therefore the demand curve must be redrawn for each change in w

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  Intermediate Microeconomics

  Neoclassical and Factually-oriented Models

  • Lester O. Bumas(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  Figure 12.8 .

    It is usually assumed that at relatively low wage rates an increase in the wage rate brings about an increase in the quantity of labor hours supplied and that at relatively high wage rates an increase in the wage rate leads to a decrease in the number of hours supplied. This means that the substitution effect is stronger than the income effect at low wages. Then for a substantial range of higher wages the quantity supplied is roughly constant implying the offsetting of the substitution effect by the income effect. Finally, supply becomes “backward bending” implying that the income effect is greater than the substitution effect at relatively high wage rates.

   

  Figure 12.9.

  The Competitive Labor Market and the Supply to the Firm

   

    Why would a person have almost the same propensity to work when wages were quite low as when they are higher? A number of reasons are suggested: (1) It may be a question of work or starve. (2) There is a social imperative that males work after schooling and before being aged. The somewhat weaker social imperative holds for unmarried women without children. For those with children there is some expectation that they will enter the labor market once the children can fend for themselves. (3) Many work because there are those who depend on them. (4) Finally, many of us are imbued with a work ethic.

  The Supply to Firms, Occupations, Industries, and Regions

  Workers in supplying their services to the economy have only one alternative to work, not to work. But there are many alternatives when decisions involve supplying labor services to one among many firms, occupations, industries, or regions. As the number of alternatives increase, the supply becomes more elastic. Why should the individual work for a firm which pays less than “the going rate” if jobs at or above that rate are available?

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