The supply of labour

Factors affecting labour supply

• Size and age structure of the population: more people of working age means more supply.
• Migration: net immigration increases supply, especially in particular occupations.
• Income tax: lower tax raises the reward for working (incentive effect), though some may work less because they reach their target income sooner.
• Welfare benefits: generous out-of-work benefits can reduce the incentive to take low-paid jobs.
• Government regulation: maximum working hours, minimum school-leaving age, retirement age, licensing of professions.
• Trade unions: closed shops and qualification rules can restrict supply to an occupation.

Also: training required, working conditions, job satisfaction and wages in other occupations.

Wage elasticity of supply of labour

PES of labour = % change in quantity of labour supplied / % change in wage.

Supply is more inelastic when:

• long training or rare skills are needed (surgeons, pilots)
• workers are immobile geographically or occupationally
• in the short run.

Supply is more elastic for unskilled jobs that many people can do, and in the long run.

Exam tip

Distinguish a movement along the supply curve (caused by a change in the wage in that job) from a shift (caused by any other factor, such as migration or a change in taxes). Draw and label the diagram: wage on the vertical axis, quantity of labour on the horizontal.

Worked example

The wage for delivery drivers rises by 10% and the number of drivers willing to work rises by 15%. Find the elasticity of supply and explain it.

1. PES = 15 / 10 = 1.5.
2. Above 1, so supply is elastic.
3. Little training is needed, so many people can switch into the job.

Answer: PES = 1.5: elastic, because the job needs few specialist skills.

Check yourself

1. The wage for nurses rises by 8% and the number of nurses willing to work rises by 2%. Find the elasticity of supply of labour.
   Show answer

   0.25. 2 / 8 = 0.25: inelastic.

2. A firm's workforce rises from 400 to 460 when it raises its wage. Find the percentage change in labour supplied.
   Show answer

   15 %. (460 - 400) / 400 x 100 = 15%.

3. Supply of labour is likely to be most wage inelastic for
   • shop assistants
   • fruit pickers
   • airline pilots
   • delivery drivers
   Show answer

   airline pilots. Long, costly training means supply cannot rise quickly.

4. A rise in net immigration of skilled workers would
   • shift the demand curve for labour to the left
   • shift the supply curve of that labour to the right
   • cause a movement along the supply curve
   • have no effect on wages
   Show answer

   shift the supply curve of that labour to the right. More workers are available at each wage.

5. Which is most likely to reduce the supply of labour to low-paid jobs?
   • Lower income tax
   • A rise in the working-age population
   • Higher wages in those jobs
   • More generous out-of-work benefits
   Show answer

   More generous out-of-work benefits. It reduces the gain from taking a low-paid job.

6. How can a trade union restrict the supply of labour to an occupation?
   • By lowering wages
   • By requiring workers to hold union membership or qualifications
   • By increasing migration
   • By cutting income tax
   Show answer

   By requiring workers to hold union membership or qualifications. Entry rules reduce the number who can work in the occupation.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (XEC11/YEC11), Unit 3 Business behaviour and Appendices 6 and 7

Last updated 8 November 2026. Spotted a mistake? Tell us.