AQA A-Level Economics · Revision notes

4.1.6.2 Influences upon the supply of labour to different markets

The supply of labour to a job depends on far more than the wage. Working conditions, training requirements and where the jobs are located all matter. This page covers the monetary and non-monetary influences on the supply of labour to an occupation, the elasticity of supply of labour, and what happens when workers cannot move easily between jobs or places.

The supply curve of labour to an occupation

The supply of labour to an occupation is the number of workers willing and able to work in it at each wage rate, over a given period. The supply curve slopes upwards: a higher wage attracts more workers into the occupation, from other jobs or from outside the labour force.

Key distinction: A change in the wage rate causes a movement along the supply curve. A change in any other factor shifts the whole curve.

Factors that influence the supply of labour to an occupation

Workers weigh up both monetary considerations, such as the wage and the pay available in other jobs, and non-monetary considerations, such as job satisfaction or dissatisfaction, working conditions and non-wage benefits. A change in any of the factors below shifts the market supply curve for labour.

Wages in other occupations. If pay rises in alternative jobs that need similar skills, workers move to them, and the supply of labour to this occupation falls. For example, higher pay for software developers can draw maths and computing graduates away from teaching, shifting the supply curve of teachers to the left.

Non-wage benefits. Pensions, holidays, company cars, flexible hours and job security make a job more attractive. Better non-wage benefits increase the supply of labour, even at the same wage. This is one reason public sector jobs, with their traditionally generous pensions and job security, can still attract workers despite lower pay than some private sector alternatives.

Working conditions. Dangerous, dirty, stressful or unsociable work reduces supply, while pleasant conditions and job satisfaction increase it. This helps explain why some jobs must pay a premium to attract workers. Offshore oil workers, for example, are paid more than onshore workers with similar skills, partly to compensate for the danger and long periods away from home.

Qualifications, training and barriers to entry. Jobs that require long training or specific qualifications, such as medicine or law, have a smaller supply of labour. Professional bodies and licensing can restrict entry further. Supply in these occupations is also inelastic in the short run, because it takes years to train new doctors or lawyers when demand rises.

The size of the working population. Population growth, changes in the retirement age and inward migration increase the number of workers available. An ageing population reduces it. In the UK, net migration has been an important source of labour for occupations with shortages, such as social care and agriculture.

Social attitudes and status. The prestige of a job, and attitudes towards who should do it, affect how many people are willing to enter it. For example, the low status and gender stereotypes attached to jobs such as childcare and nursing can reduce the number of people willing to enter them, especially men.

Trade unions. Unions can restrict the supply of labour to an occupation, for example through closed shops or by negotiating entry requirements. Closed shops have been unlawful in the UK since 1990, so this effect is much weaker today than it once was.

Elasticity of supply of labour

The elasticity of supply of labour measures how much the number of workers willing to work in an occupation changes when the wage changes. Supply of labour is more inelastic when:

• Skills are scarce and training is long. It takes many years to qualify as a doctor or an airline pilot, so a higher wage cannot quickly create more workers.
• Qualifications or licences are required, which limit who is allowed to do the job.
• Workers are immobile. If workers cannot easily move between areas or occupations, a higher wage in one place or job attracts few extra workers.
• The time period is short. Over time, higher wages encourage more people to train, so supply becomes more elastic in the long run.

Supply is more elastic when the job needs few skills, when there is plenty of unemployment or spare labour, and when workers can move easily from similar jobs.

Market failure in labour markets: immobility of labour

In a well-functioning labour market, workers move to where they are needed: from declining industries to growing ones, and from areas with few jobs to areas with many. When they cannot move easily, the market fails. Unemployment and vacancies exist side by side, and resources are misallocated.

Geographical immobility

Geographical immobility is when workers find it hard to move to a different area to take up a job.

Causes of geographical immobility

• Differences in house prices and rents. Housing in areas with many jobs, such as London and the South East, may be far more expensive than in areas of high unemployment.
• Family and social ties, such as children in local schools, caring responsibilities or a partner's job.
• The cost of moving, including removal costs and the time involved.
• Lack of information about job opportunities in other areas.

Consequences of geographical immobility

• Regional unemployment. Unemployment stays high in areas where jobs have been lost, even when there are vacancies elsewhere in the country.
• Unfilled vacancies in high-cost areas, which push up wages there and hold back the growth of firms.
• Regional inequality, as some areas prosper while others decline.

Occupational immobility

Occupational immobility is when workers find it hard to move to a different type of job.

Causes of occupational immobility

• Lack of the right skills or qualifications. A coal miner cannot easily become a software engineer.
• The cost and time of retraining, which may be difficult to afford, especially for older workers.
• Lack of information about which skills are in demand.

Consequences of occupational immobility

• Structural unemployment, as workers from declining industries lack the skills to fill vacancies in growing ones.
• Skills shortages in growing industries, which hold back output and push up wages in those occupations.

Consequences for the economy as a whole

Both types of immobility mean that labour is not used where it is most productive. This leads to:

• Lower productivity and growth, because output is lower than it would be if workers could move to where they are needed.
• A misallocation of resources, with unemployment and vacancies existing side by side.
• Costs for the government, as spending on unemployment benefits rises and tax revenue falls.

Policies to tackle labour market immobility

• Training and apprenticeships to reduce occupational immobility.
• Relocation support and help with moving costs to reduce geographical immobility.
• Housing policy, such as building more affordable homes in areas with many jobs.
• Better information about job vacancies through job centres and online services.

Key terms

Common mistakes

• Shifting the supply curve for a change in the wage. A change in the wage causes a movement along the curve.
• Mixing up the two types of immobility. Geographical immobility is about place; occupational immobility is about skills.
• Forgetting non-wage factors. Conditions, benefits and training requirements all affect supply.
• Describing immobility without the market failure. The point is that unemployment and vacancies exist at the same time, so resources are misallocated.

How this has been examined

In the AQA papers indexed on this site, this topic has appeared in five formats:

• 15-mark "Explain" essay — asked once (2023)
• 9-mark "Explain" data response — asked once (2023)
• 4-mark "Explain" data response — asked twice across 2 series (2020 to 2022)
• 2-mark calculation — asked twice across 2 series (2017 to 2022)
• 1-mark multiple choice — asked once (2021)

Where this goes next

The demand side is covered in 4.1.6.1 The demand for labour, marginal productivity theory, and the two are combined in 4.1.6.3 The determination of relative wage rates and levels of employment in perfectly competitive labour markets, which also explains why the elasticity of supply of labour matters. Structural unemployment is covered in 4.2.3.2 Employment and unemployment, and policies to improve labour mobility in 4.2.5.2 Supply-side policies.