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Determinants of the Supply of Labor

Essay by   •  June 3, 2011  •  Case Study  •  949 Words (4 Pages)  •  1,741 Views

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Determinants of the supply of labor

The supply of labor in a given market is determined by:

a. Wage rate: the higher the price of labor, wage rate, the higher the supply of labor services.

b. Labor force participation rates: the participation of individuals in the labor force is influenced at any given time by age, sex, education, family and spouse income, caste and customs, number and age of children in the family etc.

c. The number of hours individual is willing to work: the number of hours a worker is willing and able to work depends upon his choice between work (which gives him money income) and leisure time. Both the income and substitution effect operates whenever the wage rate changes, but they work in opposite directions. It is the magnitude of each of the effects which determines whether the individual will be willing to put in more hours of work or not. If substitution effect is stronger than the income effect, the individual worker will put in more hours of work. If the income effect offsets the substitution effect, the worker will prefer to cut down hours of work and enjoy more leisure hours.

d. Education, training and skills of people in the labor force: the marginal productivity theory has suggested that a worker will receive higher wages to the extent that his education makes him more productive. Further the productivity of a worker improves with on the job training and work experience. This process of labor force acquiring and sharpening its productive skills result in the quality of human capital improving. This makes the labor more refined and productive and the ability of workers to perform certain tasks gets enhanced.

Supply curve of labor

Supply of labor is the total number of hours an individual worker is willing to work given the wage rate. The supply of labor by an individual worker depends upon his choice between work and leisure. Given the total number of hours available to an individual in a day, i.e. 24 hours, the worker has to divide daily time into working hours and leisure hours. There is an inverse relationship between hours worked and leisure hours. If the individual worker increases his leisure hours, the hours of work decrease and vice versa.

"Working hours" yield money income to the individual worker, which he uses to purchase goods and services to satisfy his wants. "Leisure" hours are also a necessary "commodity", as they provides satisfaction to the individual in terms of relaxation and recreation time. The individual can earn more money income only by foregoing leisure time.

Therefore, the individual faces a choice between money income and leisure hours. We make use of indifference curve to show the workers tradeoff between money income and leisure hours. We measure income on y axis and the leisure

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