15.14 : Effect on Equilibrium: Shift in Labor Supply

A shift in labor supply involves changes in the total number of workers willing to supply labor at different wages. Such shifts are driven by non-price factors like immigration, demographic shifts, or changes in attitudes towards work. When the labor supply curve shifts to the right,this indicates an increase in available workers at each wage. A leftward shift indicates a decrease at each wage. Such shifts alter the entire supply curve, reflecting a change in the relationship between the wage and the quantity of labor available.

When the labor supply curve shifts rightward, the equilibrium wage decreases. For example, the labor force may expand due to immigration. This means more workers are available at any given wage, creating a surplus of labor at the existing market wage. Firms will then offer lower wages, as they can hire the same quantity of workers at a lower wage and still maintain production levels. However, as wages fall, firms are willing to hire additional workers to increase production, which increases the overall level of employment. Ultimately, a greater number of workers are hired, but they earn a lower wage.

When the labor supply curve shifts leftward, the equilibrium wage increases. For example, when most families have fewer children, the labor supply curve shifts to the left over time. This demographic shift represents an eventual reduction in the number of workers available for employment at any given wage level. This creates a shortage of labor at the existing wage, and firms must offer higher wages to retain workers and try to maintain production levels. However, as wages rise, firms reduce production levels and hire fewer workers, which decreases the overall level of employment. Ultimately, a lower number of workers are hired but they earn a higher wage.