A2 Economics Aims and Objectives Aim Understand the elasticity of labour supply Objectives Define elasticity of supply in labour markets Explain the factors affecting supply to a firm Analyse the determinants of elasticity of labour supply ID: 327453
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Slide1
Labour Elasticity of Supply
A2 EconomicsSlide2
Aims and Objectives
Aim
Understand the elasticity of labour supply
Objectives:
Define elasticity of supply in labour markets
Explain 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.Slide3
Starter
Changes in the UK/International labour supply.
People changing career paths to ones they enjoy!
http://
www.youtube.com/watch?v=UKsi71iIgYoSlide4
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?Slide5
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 vacancies
Opportunities to work overtime: to earn more money
http://www.youtube.com/watch?v=-
WxX1YQVdlISlide6
Industry Labour Supply Curve
Real Wage Rate
Quantity of Labour
Q1
Q2
W1
W2
Higher Wage Rate attracts more labour to the market.Slide7
Elasticity of Supply
The 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 supplied
Percentage change in wage rateSlide8
Elasticity Determinants
Discuss why each of these factors influences the elasticity of the labour supply. Can you think of any more?Slide9
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
skills
Elasticity tends to be lower for skilled jobs than for unskilledSlide10
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.Slide11
Sense of Vocation
For 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.
http://
www.youtube.com/watch?v=xF3bc3cCI4QSlide12
Time Period
In the long run supply of labour will tend to be more elastic.
This may be because certain occupations require a notice period
However football managers do not!Slide13
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.Slide14
Backward Bending Labour Supply Curve
Real Wage Rate
Hours Worked per Year
Q1
Q2
W1
W2
Substitution Effect +
Income Effect +
Overall +
Substitution Effect +
Income Effect -
Overall +
Substitution Effect +
Income Effect -
Overall -
Effect on hours worked as real wage rate risesSlide15
Individuals Supply of Labour
The effects of a change in the wage rate can be divided into two aspects.
Substitution Effect
If 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.Slide16
Individuals Supply of Labour
Income Effect
If 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).Slide17
Plenary: Discussion
Can firms/ organisations/ governments influence or alter the elasticity of the labour supply in a given industry
?
Critique the backward bending labour supply curve.