The Supply of Labor
The supply schedule of labor tells us the amount and type of workers who will be available to the market under varying economic conditions. This knowledge is important for several reasons.
First, the government is at least nominally committed to pursuing full employment by the Employment Act of 1946. The number of jobs, however, that are required to fully employ the labor force can only be determined after we know how many persons desire work. This information is provided by the labor supply schedule.
Second, the labor requirements of industry are constantly changing. The demand for the products of some industries is declining, while demand is brisk in others. In addition, the kind of labor each industry requires changes over time. Generally speaking, the advance of technology has been accompanied by an increased demand for skilled labor. The ease with which labor can be reallocated between industries and the work force transformed in terms of its skill content are additional questions that concern the behavior of labor supply.
Third, the distribution of earnings in the labor market reflects characteristics of the labor supply. The more homogeneous the labor force, the more equal we might expect the distribution of earnings to be. Therefore, one way to reduce income inequality is to change labor supply characteristics.
As these examples illustrate, the labor supply has at least two dimensions: a quantitative dimension that deals with how much labor is supplied, and a qualitative dimension that consists of the skills and other work-related characteristics workers provide to the market. This chapter focuses primarily on the quantitative aspects of labor supply. We will consider how the number of workers and the hours they work respond to changes in economic conditions both in the long run and during the business cycle. In Chapter 8, we will analyze the qualitative aspects of the labor supply and consider alternative theories advanced to explain changes in the quality of the labor force.
It is useful to regard the quantity of labor supplied as composed of two parts: the number of people who are available for work, and the amount of work they wish to