Changes in labor supply | Microeconomics | Khan Academy

TL;DR

An increase in labor supply shifts the supply curve to the right, lowering the equilibrium wage and raising the equilibrium quantity of labor. The Khan Academy explanation uses increased immigration and greater workforce participation as examples; net migration out or declining willingness to work shifts supply left, raises wages, and reduces employment. Read on to see how these shifts affect firms in a perfectly competitive labor market.

Transcript

• [Instructor] In a previous video, we took a look at the labor markets, and we thought about it in the context of the entire market and how it might impact a firm. So let's say that all of a sudden, the nation's immigration policy changes where they're willing to bring in a lot more folks who have the skills necessary to participate in the labor m... Read More

Key Insights

• 🔬 Immigration increases the supply of labor, leading to a lower equilibrium wage in labor markets.
• 🔬 Increased labor supply due to immigration can incentivize firms to produce more.
• 🧑‍🏭 Factors other than immigration, such as changing social norms or preferences, can also affect the labor supply curve.
• 🥺 Net migration out of a country decreases labor supply and leads to a higher equilibrium wage.

Questions & Answers

Q: How does increased immigration affect the labor market?

Increased immigration adds people with the necessary skills to participate in the labor market. At any given wage, more labor is available, so the market labor supply curve shifts to the right.

Q: What happens to wages and employment when labor supply increases?

When labor supply increases, the equilibrium wage falls. At the same time, the equilibrium quantity of labor rises.

Q: How does increased labor supply affect a firm in a perfectly competitive labor market?

The firm pays the lower market wage because it operates in a perfectly competitive labor market. Its marginal factor cost shifts down, making it rational for the firm to produce more and hire more labor.

Q: What can shift the labor supply curve to the right besides immigration?

The curve can shift right when more people already in the country become willing or able to participate in a labor market. The instructor cites women entering the labor force as social acceptance increased in the second half of the 20th century.

Q: How does net migration out of a country affect labor supply?

Net migration out means fewer people are willing to work at a given wage. The market labor supply curve therefore shifts to the left.

Q: What happens to wages and employment when labor supply decreases?

A leftward shift in labor supply raises the market equilibrium wage. It also lowers the equilibrium quantity of labor.

Q: What factors other than migration can decrease labor supply?

Labor supply can fall when preferences or social norms make people less willing to work in a particular market. It can also fall when another industry begins paying better and attracts workers away.

Q: How does a decrease in labor supply affect an individual firm?

In a perfectly competitive labor market, the higher market wage raises the firm's marginal factor cost. The quantity of labor hired by the firm consequently decreases.

Summary & Key Takeaways

• Immigration into a country increases the supply of labor, causing the labor supply curve to shift to the right.

• The new equilibrium wage in the market is lower, while the equilibrium quantity of labor is higher.

• In a perfectly competitive labor market, firms will adjust their production levels based on the new equilibrium wage.