The main determinant of labor supply is the wage rate. At the lower portion of the supply curve, people are willing to supply more labor hours when wage increases. However, the labor supply curve will bend backward at the higher wage rate, indicating a negative relationship between wage rate and labor supply quantity. This is due to the income effect. As people get richer, they need time to spend their income. So they will take time off from work to enjoy life. Fewer labor hours will be supplied as a result.

Other determinants of Labor supply are:

  1. Adult population: increase in population will increase work force, and labor supply.
  2. Preferences: as more women or retired people choose to work, the labor supply increases.
  3. Time in school and training: when people spend more time in school, the low skill labor supply decrease, and the high skill labor supply increases.

The supply of labor depends on the following factors:-

  • Population and its composition:
    The larger the population more will be the supply of labor. If the percentage of the working population is more, the supply of labor is more. Also if the percentage of males is higher, the supply of labor will be higher.
  • Wage rate:
    A reasonably high wage rate linked with the cost of living index will bring more supply of labor.
  • Working conditions:
    A comfortable working place and satisfactory conditions will improve the labor supply.
  • The attitude of workers:
    If people are ambitious and hard-working, the labor supply will be more.
  • Cost of education and training:
    If education and technical training are very expensive, the supply of unskilled labor will be more. If it is provided by the government at a reasonable price, skilled labor will be more.
  • Migration and immigration:
    Due to the migration of workers to other countries, labor supply will reduce and immigration of workers from other countries will push up the supply of labor.
  • General health and stamina:
    Healthy people will have more stamina to work and this will improve the labor supply. The health of workers depends upon their living conditions and the climate of the place. When the life expectancy of the people is high, the supply of labor will be more.
  • Geographical and occupational mobility of labor:
    If people are willing for geographical and occupational mobility then the supply of labor will be more.
  • Non-monetary factors:
    Fringe benefits, job satisfaction, future promotion, the willingness of the individuals also play a vital role in determining the supply of labor.
  • Quality of Human capital:
    Investment in human capital through education, training, public health, etc. will improve the quality and effectiveness of labor supply.
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