Supply of Labor

The market supply curve for labor will be upward-sloping, again as usual. In other words, high wages encourage a greater supply of labor. That’s intuitive but we do have to take into account one complication. An individual’s labor supply curve need not slope upward throughout its range. When Bruce Springsteen was paid $100 a night, he toured constantly just to pay the rent. Now that he is paid hundreds of thousands of dollars a night, Springsteen tours less often. If his wage is already high, even Joe the janitor might decide that he would prefer spending more time with his family to working more hours at an even higher wage rate.

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Figure 18.2 illustrates. In panel A, if the wage is between $7 and $16 an hour, Joe works 40 hours a week, so over this range Joe’s supply curve for labor is vertical. If the wage rises to $20 an hour, Joe is willing to work overtime and he puts in 50 hours a week (a positively sloped labor supply curve). At $20 an hour, Joe is making a comfortable income—enough so that if his wage rises even further, Joe would prefer to work fewer hours and instead enjoy the money he is making by taking more leisure time. Thus, it is quite plausible that as the wage rises to $28 an hour, Joe asks his bosses for less overtime (a negatively sloped, or backward-bending, labor supply curve).

The Individual and Market Supply of Labor
Panel A: For a wage between $7 and $16 an hour, Joe works 40 hours a week. For $20 an hour, however, Joe is willing to work 50 hours a week, but as the wage increases, Joe takes more of his income in the form of leisure and works less—thus, over a higher range, Joe’s labor supply curve may be backward-bending.
Panel B: The labor supply curve for the market is positively sloped throughout because even if Joe works less as the wage rises (over some range), many other workers enter the office cleaning industry as the wage rises.

Although Joe’s supply curve for labor could have a zero, positive, or even negative slope, the market supply curve for labor is very likely to be positively sloped. Why? Let’s go back to when Joe was earning $7 an hour and putting in 40 hours a week. When the wage rises to $16 an hour, Joe doesn’t work more hours; but, at a higher wage, Mary, who was working in the restaurant business, is likely to switch to office cleaning. Thus, in panel B, we show the market supply of janitors. When the wage increases, the market supply increases for two reasons: first, some workers—although not all—are likely to work more as the wage increases. Second, and more important, when the wages of janitors increase, that attracts workers from other industries. Together, these two factors mean that even if some individuals supply less labor at a higher wage, a higher wage increases the quantity of labor supplied overall.

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Thus, an upward-sloping market supply curve is the normal situation.

We can now put together the supply and demand for janitors in the usual fashion to represent the market for janitors.

In the United States, there are about 4.2 million janitors, each working about 40 hours a week (168 million hours a week in total) and earning an average wage of $10 an hour. Thus, the market for janitors can be represented in Figure 18.3. As usual, the price (wage) is found at the intersection of the demand for janitors and the supply of janitors.

CHECK YOURSELF

Question 18.2

Why might an individual’s supply of labor curve be backward-bending? Explain.

Market Demand for Janitors The price of labor (wage) is determined in the market for labor. In this case, the wage of janitors is determined by the demand and supply of janitors.

By the way, recall that we said earlier that the wage and the marginal product of labor will always be very close together. That is because a firm will keep hiring workers so long as MPL is greater than W. When we think about many firms and many workers, it often simplifies things to say that the MPL = W. Thus, we know that in the United States, the marginal product of a janitor is about $10 an hour.