Supply of labour

Indian Economy glossary

Also called: Labour supply curve · Topic: Factors of Production, Entrepreneurship and Startups · NCERT: Class 12, Ch 5 "Market Equilibrium"

Meaning

Supply of labour is the number of hours of work that households offer at each wage rate. Labour is counted in hours, not in number of people. Each person weighs two things against each other: leisure (free time they enjoy) and the income that work brings. This is the income–leisure trade-off. For one worker, the supply curve can bend backward at high wages. The market labour supply curve still slopes upward, because higher wages bring new workers into the market.

Example

In a town, a wage of ₹100 an hour might draw 1,000 hours of work a day from households. At ₹150 an hour, more people take up jobs and 1,400 hours may be offered. Along the market supply curve, the hours offered rise as the wage rises.

Don't confuse with

  • Demand for labour: firms demand labour, and households supply it. In a goods market it is the other way round.
  • Backward-bending labour supply curve: this describes one worker's supply. At high wages the income effect (feeling richer, so buying more leisure) can outweigh the substitution effect (leisure now costs more lost pay). The market curve still slopes upward.

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