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Economic Theory

Table 4.2 – Determinants of Labor Supply

Factors Results
Number of An increased number of workers will cause the supply curve to shift
Workers to the right. An increased number of workers can be due to several
factors, such as immigration, increasing population, an aging
population, and changing demographics. Policies that encourage
immigration will increase the supply of labor, and vice versa.
Population grows when birth rates exceed death rates; this eventually
increases supply of labor when the former reach working age. An
aging and therefore retiring population will decrease the supply of
labor. Another example of changing demographics is more women
working outside of the home, which increases the supply of labor.
Required The more required education, the lower the supply. There is a lower
Education supply of PhD mathematicians than of high school mathematics
teachers; there is a lower supply of cardiologists than of primary care
physicians; and there is a lower supply of physicians than of nurses.
Government Government policies can also affect the supply of labor for jobs. On
Policies the one hand, the government may support rules that set high
qualifications for certain jobs: academic training, certificates or
licenses, or experience. When these qualifications are made tougher,
the number of qualified workers will decrease at any given wage. On
the other hand, the government may also subsidize training or even
reduce the required level of qualifications. For example, government
might offer subsidies for nursing schools or nursing students. Such
provisions would shift the supply curve of nurses to the right. In
addition, government policies that change the relative desirability of
working versus not working also affect the labor supply. These
include unemployment benefits, maternity leave, child care benefits
and welfare policy. For example, child care benefits may increase the
labor supply of working mothers. Long term unemployment benefits
may discourage job searching for unemployed workers. All these
policies must therefore be carefully designed to minimize any
negative labor supply effects.

A change in salary will lead to a movement along labor demand or
labor supply curves, but it will not shift those curves. However, other
events like those outlined here will cause either the demand or the supply

of labor to shift, and thus will move the labor market to a new equilibrium
salary and quantity.

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