- [Instructor] So let's
keep talking about labor
as a factor of production.
In particular we're going to think
about the supply curve of labor.
So when you're thinking about
the supply or the demand curve
for elite labor, when you're
thinking about quantity,
you could just view that as hours worked
in a certain time period.
Hours worked.
And then, for the price
of labor you could just do
that as wages.
And we've already thought
about what the demand curve
for labor would look like.
At high wages, not a lot
of folks will want to use
that labor, it's going to be so expensive.
They might not even be able to afford it,
and then as wages come down,
more people will generally
want, will demand that labor,
and so they will want more hours
for folks to work, and so this
would be our demand curve.
Or we could call this
our labor demand curve.
Now what about the labor supply curve?
What do you think that's
going to look like?
Well, not a trick question.
When wages are low, a lot folks
might say hey, I have other
things to do with my time,
but then as wages get higher
and higher they might trade
off those other things.
Doing those other things
in some ways has a higher
opportunity cost, it gets more expensive.
And so they might trade off
those other things for working.
And so they might collectively
work more and more hours,
and so as wages go up, generally speaking,
hours worked goes up.
So this is a fairly classic looking labor
labor supply curve.
And this dynamic, that
I just talked about,
where people are trying to
trade off whether they work
or whether they do other things,
this is typically referred
to as the labor-leisure
leisure trade off.
Now, in everyday language,
when you use the word leisure,
it's usually referred to
you're relaxing or spending
time with friends or enjoying
yourself in some ways,
but when people talk about
the labor-leisure trade off
in economics, they're
really talking about labor
or anything that is not labor.
So, leisure would include
sleeping or eating
or using the restroom, all
of those would be included,
so it really should be
called the labor, not-labor
trade off, but I guess
that doesn't sound as good
as labor-leisure trade off.
And so what you really see
happening here is this wages
are higher and higher people
are willing to trade off
leisure, I'll put that
in quotes for labor.
Now, the effect that we often
talk about, why that is,
and in a lot of ways that's common sense,
that's the substitution effect.
Substitution effect.
As wages go higher, you could
view the opportunity cost
of leisure gets more and more
expensive and if anything
gets more expensive, you try
to substitute it with other
things, in this case you
could substitute it with
more labor, by just working more.
Now there is an interesting
dynamic that some people
talk about, which is the income effect.
Which is the income effect.
And the income effect is as
your wages go up you tend
to want to buy or demand
more of everything.
And you could view leisure
as a good that you,
as a worker might want.
So there might be dynamic
that if income gets above
a certain level,
that you actually might
not wanna work more.
That you actually might want more leisure
because you have more than enough
to supply all of your needs.
And so if you wanted to imagine
what a labor supply curve
would look like if you could
imagine the income effect
kicking in at higher wages,
it actually could look
something like this.
At low wages, it could look
very similar to what we just
described, but then there
might be some wage where people
are like you know what, I
have enough money and rather
than just working that extra
hour I actually might want
to spend that time with my
family or go on vacation
and in a lot of ways it's
a very healthy mindset,
as my personal opinion, I
don't think enough people
have that mindset, but
if that were the case,
at some point when wages
get to a certain point
people actually might want to work less.
And so you would have this
backward bending labor supply curve.
So let me write this.
This is a labor supply curve supply curve
with the income effect
after a certain point.
Income effect.
So it's an interesting
thing to think about.
Is there a certain income
level above which people say,
you know what, I have
enough and rather than work
harder, I might work a little bit less.
Interesting to think about.
