15.9 : The Market Supply of Labor

Labor is a unique factor of production. While labor is demanded by firms, it is supplied by individuals living in households.

The market supply curve of labor illustrates the relationship between the market wage rate and the quantity of labor that workers are willing to provide in a market, assuming nothing else changes besides the market wage.

It is upward-sloping.

This means that if the market wage rate is higher, the quantity of labor supplied increases, and when the wages are lowered, the quantity supplied decreases.

Higher wages may attract new entrants to the labor market or encourage current workers to work more hours.

However, for ease of analysis, it is often assumed the quantity of labor supplied to the market refers to the increase in the number of workers as wages rise. This helps to focus on the overall availability of labor in the market in response to wage changes.

After a certain wage is achieved, the labor supply curve of individuals could be backward bending. This arises when the extra income of higher wages allows for more leisure time to be consumed without a decrease in income. However, the market supply curve for labor is assumed to be upward-sloping because higher wages encourage additional workers to enter the labor market.