Labour Supply: The Basic Model

The supply of labour is defined as the amount of labour, measured in person-hours, offered for hire during a given time-period. Taking population as given, the quantity of labour supplied depends on two main factors. First, there are the numbers engaged in or seeking paid employment, which together make up the labour force or the supply of workers . This amount can conveniently be expressed as a fraction or percentage of the total population, to give an activity or labour force participation rate . Second, there is the number of hours that each person is willing to supply once he or she is in the labour force — the supply of hours . The determinants of these two dimensions of labour supply are discussed in this chapter, while Chapter 3 explores a number of extensions to the basic model. First, we consider the supply of workers.