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Study notes

Labour Supply - Shifts in Market Supply (Labour Markets)

  • Levels: A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

This study note looks at some of the causes of shifts in the supply of labour to an occupation / industry.

The market supply of labour will shift when there is a change in one or more of the conditions of supply in a given labour market.

Outward shift of labour supply

An outward shift of the labour supply curve from LS1 to LS2 means more people are willing and able to work at a given wage rate:

There are many possible causes:

  1. Net inward migration of suitable qualified / experienced workers
  2. Fall in relative pay/earnings in substitute occupations
  3. Lower entry barriers to this particular job such as minimum professional qualifications
  4. Demographic factors causing a rise in the active labour supply

Inward shift of labour supply

An inward shift in labour supply implies that fewer people are willing/able to offer themselves for work in a given occupation at the prevailing wage rate / salary

Some causes might include:

  1. Brain drain effects – e.g. when an economy loses skilled workers overseas
  2. Decline in non-monetary rewards associated with the job e.g. job dissatisfaction / stress
  3. Fall in relative pay in this occupation compared to other jobs
  4. Rise in minimum qualifications needed to work in an occupation

In some industries, shortages of highly skilled workers are a key factor limiting the ability of businesses to expand their operations. A good example is shown below, it is a survey of jobs that are hard to fill in the UK video games industry in 2014.

Revision video: Labour Supply (including shifts in labour supply)

Labour supply - revision video

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